Economic Performance

3
Economic Report 2007/2008
Economic
Performance
and Prospects
Overview
Growth driven
demand
by
strong
inflows of foreign direct investment (FDI), higher

tourist arrivals and sustained export earnings,
the overall balance of payments (BOP) position
is expected to remain strong. Per capita income
is envisaged to grow by 7.2% to RM22,345
(2006: 9.9%; RM20,841), while per capita income
in terms of Purchasing Power Parity (PPP), is
expected to increase by 13.9% to USD13,289
in 2007 (2006: 13.0%; USD11,663).
domestic
rowth prospects for the Malaysian economy

remain favourable in 2007, despite uncertainty
in the global economic environment. Strong
domestic economic fundamentals will enable
the economy to grow at 6.0% in 2007 (2006:
5.9%). On the supply side, output growth is
supported by expansion in all sectors of the
economy. The services sector is envisaged to
contribute significantly to real Gross Domestic
Product (GDP) growth, led by robust household
spending and buoyant business activity. The
manufacturing sector is expected to pick up in
the second half of the year on the back of an
anticipated recovery in global electronics demand.
The agriculture sector will continue to expand,
supported by higher output of food commodities.
The scheduled implementation of Ninth Malaysia
Plan (9MP) projects and improvement in the
property market will further boost the construction
sector. Output growth of the mining sector is
envisaged to turn positive, with increased crude
oil production in the second half of the year.
On the demand side, growth will be driven by
resilient domestic demand of both private and
public sectors, largely due to stronger consumer
sentiment and business confidence as well as
higher Government spending.
Sectoral Performance
Services Sector
Services continues to drive GDP growth
Value added of all sectors in the economy is
expected to record positive growth, led by the
services sector, as shown in Table 3.1. In
2007, the services sector is expected to register
solid growth of 9.0% (2006: 7.2%), exceeding
the overall expansion of the economy. Growth
in the sector is projected to surpass that of
the manufacturing sector and contribute 4.6
percentage points to GDP growth (2006: 3.7
percentage points). This reflects a gradual shift
in the structure of the Malaysian economy, from
manufacturing to services.
Growth in the services sector is led by the
intermediate services group comprising finance
and insurance, real estate and business services,
transport and storage as well as communication
sub-sectors. The intermediate services group is
estimated to grow at a faster pace of 10.6% in
2007 (2006: 7.6%), underpinned by double-digit
On the external front, Malaysia is expected to

record a smaller trade surplus, as import growth
picks up momentum in line with increased domestic
economic activity. Supported by the increase in
25
TABLE 3.1
Gross Domestic Product (GDP) by Sector

2006-2008
(in 2000 prices)
Change
(%)
2006
20071
Share of GDP
(%)
20082
2006
20071
Contribution to
GDP growth
(percentage point)
20082
2006
20071
20082
Services
7.2
9.0
8.6
51.8
53.2
54.3
3.7
4.6
4.6
Manufacturing
7.1
3.1
3.8
31.1
30.3
29.6
2.2
1.0
1.2
Agriculture
5.2
3.1
3.5
7.9
7.7
7.5
0.4
0.2
0.3
Mining
-0.4
3.3
4.0
8.8
8.6
8.4
0.0
0.3
0.3
Construction
-0.5
5.2
6.3
3.1
3.0
3.0
0.0
0.2
0.2
Less: Undistributed FISIM3
3.4
7.4
6.9
3.9
3.9
3.9
0.1
0.3
0.3
-12.1
0.8
1.0
1.1
1.1
1.0
-0.2
0.0
0.0
5.9
6.0
6.0-6.5
100.0
100.0
100.0
5.9
6.0
6.0-6.5
Add: Import duties

GDP
1
Estimate.
Forecast.
Financial Intermediate Services Indirectly Measured (FISIM).
Source: Department of Statistics and Ministry of Finance, Malaysia.
expansion in finance and insurance as well as

real estate and business services sub-sectors. At
the same time, the transport and storage as well
as the communication sub-sectors are expected
to accelerate at a steady pace. Final services
including utilities, wholesale and retail trade, as
well as accommodation and restaurants subsectors is expected to register sturdy growth of
8.7% (2006: 6.1%). Strong household spending
and tourism activity will drive demand for final
services.
Meanwhile, growth of the business services

segment is supported by vibrant stockbroking,
shared services and outsourcing (SSO) activity
as well as information technology (IT) services.
Strong growth in volume and value of transactions
in the equity market, during the first seven months
of 2007, at 95.7% to 255,250 million units and
149.2% to RM381,570 million respectively, spurred
stockbroking activity (January-July 2006: 70.2%,
130,409 million units; 19.0%, RM153,111 million).
The Kuala Lumpur Composite Index closed higher
at 1,373.7 points at end-July 2007 with market
capitalisation of RM1,077.3 billion (end-2006:
1,096.2 points; RM848.7 billion).
The real estate and business services subsector is estimated to expand strongly by 15.6%
in 2007 (2006: 9.9%) supported by increased real
estate activity and higher turnover in the equity
market. The number of real estate transactions
increased by 3.0% to 135,189 in the first half
of 2007 (January-June 2006: -4.1%; 131,313
transactions). The value of transactions rose by
12.4% to RM32.3 billion (January-June 2006: 0.9%;
RM28.8 billion), reflecting better performance in
the high-end property market. Loans approved for
purchase of residential property grew by 27.8%
to RM20.9 billion in the first half of 2007 while
loans to the real estate sub-sector rose by 93.9%
to RM5.7 billion (January-June 2006: -10.2%,
RM16.4 billion; 35.4%, RM2.9 billion).
With regard to SSO activity, during the first

six months of 2007, a total of 66 regional
establishments were approved (end-2006: 2,280),
consisting of seven operational headquarters,
six international procurement centres, 21
regional offices and 32 representative offices.
These entities are mostly engaged in electrical
and electronics (E&E), chemical, healthcare,
automotive and logistics activities. Additionally,
19 SSO companies were awarded Multimedia
Super Corridor (MSC) Malaysia status.
26
As for IT services, as at end-July 2007 there

are 1,875 MSC Malaysia status companies, of
which 1,394 are Malaysian owned, while 92 are
multinational companies (MNCs). During the
first seven months of 2007, a total of 147 new
MSC Malaysia status companies were approved
(January-July 2006: 131 new companies). These
companies are expected to create 9,775 jobs with
total investment of RM1.8 billion by the third year
of operations. In terms of technology, the new
companies are involved in creative multimedia
(16.3%), application software (40.1%), mobility,
embedded software and hardware (19.0%) as well
as internet-based business (10.2%). The roll-out
of MSC Malaysia to the Northern, Southern and
other economic corridors is expected to further
boost the business services sub-sector.
and insurance. The growth in Islamic financing

will also have a favourable impact on the subsectors performance as industry players expand
their business, benefitting from a growing pool
of domestic savings and the positioning of the
country as a major Islamic financial hub. As
at end-June 2007, total loans outstanding of
the banking system grew by 6.0% to RM614
billion (end-2006: 6.3%; RM593 billion), with
loans to small and medium enterprises (SMEs)
and households comprising 17.4% and 56.1%,
respectively (end-June 2006: 17.5%; 55.5%).
Increased product innovation as well as higher
interest and fee-based income boosted the banking
system. Meanwhile, growth of the sub-sector was
also supported by increased insurance activity led
by strong demand for investment-linked as well
as medical and health insurance products.
The finance and insurance sub-sector is

expected to expand by 10.7% in 2007 (2006:
7.7%). Growth will be supported by steady
financing activity for consumer credit and
business investment, and new range of products
and services for retirement savings, investment
Growth of the wholesale and retail trade subsector is envisaged to strengthen by 11.6% in
2007 (2006: 7.1%), while the accommodation
and restaurants sub-sector is expected to grow
by 9.4% (2006: 6.0%). The strong growth in both
TABLE 3.2
Services Sector Performance

2006-2008
(in 2000 prices)
Change
(%)
Share of GDP
(%)
2006
20071
20082
5.2
6.8
7.6
7.2
7.8
7.7
2006
20071
20082
3.6
3.7
3.7
3.8
3.7
3.8
Intermediate Services

Transport and storage

Communication
Finance and insurance
7.7
10.7
9.2
10.2
10.7
11.0
Real estate and business services
9.9
15.6
9.8
4.6
5.0
5.1
Final Services

Utilities (electricity, water and gas)
5.2
4.6
5.0
3.1
3.0
3.0
Wholesale and retail trade
7.1
11.6
10.0
11.6
12.2
12.6
Accommodation and restaurants
6.0
9.4
9.5
2.2
2.3
2.3
Other services
4.7
5.0
5.9
5.8
5.7
5.7
Government services
9.8
4.6
8.6
7.1
7.0
7.1
Total
7.2
9.0
8.6
51.8
53.2
54.3
1
2
Estimate.
Forecast.
27
sub-sectors is consistent with robust private

consumption supported by rising disposable
income, expanding retail activity and increased
tourist arrivals in tandem with Visit Malaysia
Year (VMY) 2007.
The Meetings, Incentives, Conventions and

Exhibitions (MICE) industry is an emerging
segment of growth. MICE represents at least
10.0% of the market share of total tourist
arrivals in the country. For 2007, a total of 8,375
international MICE events have been planned,
involving more than two million foreign delegates
with anticipated earnings of RM4.5 billion or an
increase of 73.8% (2006: 3,148 events; 820,243
foreign delegates; RM2.6 billion; 12.8%). In line
with efforts to encourage foreigners to stay in
Malaysia on a longer-term basis, the Government
continues to enhance and actively promote the
Malaysia My Second Home (MM2H) programme.
Since its inception in 1996 up to end-2006, this
programme has drawn 9,551 foreigners, of which
2,021 are from China, Bangladesh (1,429) and
Britain (1,049). From January to July 2007, the
programme attracted 940 participants, with the
highest number of participants from Britain (146),
followed by Japan (123), Bangladesh (112),
South Korea (111) and China (52).
Increased spending by rising number of foreign

tourists coupled with robust household spending
has a positive multiplier effect and this augurs
well for the retail industry. In line with the
Governments efforts to promote Malaysia as a
preferred shopping destination, tourist expenditure
on shopping is expected to increase by 26.3%
to RM11.8 billion in 2007 (2006: 25.7%; RM9.3
billion). The vibrant retail activity is also attributable
to higher domestic consumer spending supported
by stable employment and income coupled
with favourable consumer credit conditions.
Consumption credit rose by 7.1% as at end-June
2007 to RM145.2 billion (end-June 2006: 21.3%;
RM136 billion), while the import of consumption
goods expanded by 5.0% to RM13.8 billion
(January-June 2006: 13.4%; RM13.2 billion). The
expansion of existing and opening of new retail
outlets by local and international chain operators
is expected to spur the performance of the retail
industry. Currently, there are 60 hypermarket
outlets operating in the country, employing
more than 16,000 local workers. Meanwhile,
total expenditure on accommodation by foreign
tourists also contributes to the growth in the
accommodation and restaurants sub-sector. In
2007, expenditure on accommodation by tourists is
expected to increase by 35.4% to RM17.4 billion
(2006: 35.4%; RM12.8 billion) and remain as
the main component of total tourist
expenditure.
The communication sub-sector is expected to

expand by 7.2% in 2007 (2006: 6.8%), with growth
emanating mainly from the telecommunications
industry. Growth prospects in telecommunications
remain favourable with significant expansion in
cellular and broadband segments driven by intense
marketing efforts and improvements in the quality
of service by industry players. As at end-June
2007, cellular subscriptions stood at 21.2 million
with a penetration rate of 78.0% (end-2006: 19.5
million; 72.3%) leading to high usage of voice, data
and multimedia services. Increased affordability
and availability of multimedia cellular phones
with advanced features, which meet the current
lifestyle, continues to drive the cellular segment.
Additionally, higher volume of short message
services (SMS) traffic also contributed to the
performance of the cellular segment by recording
an impressive growth of 64.2% to 24.7 billion
messages in the first half of 2007 (January-June
2006: 80.1%; 15.1 billion). Cellular subscription
is anticipated to reach 23 million by year-end.
The growing take-up rate of third generation
(3G) mobile services is another factor driving
the telecommunications industry. As at end-June
2007, the number of 3G subscribers reached
829,600 (end-2006: 406,717). The increase is
mainly attributed to affordable 3G phones and
The tourism industry remains a key driver of

growth in the services sector. Strong promotional
activities for the VMY 2007 campaign are expected
to further boost the performance of the sector. In
the first six months of the year, tourist arrivals
increased by 24.8% to 10.7 million (JanuaryJune 2006: 4.9%; 8.6 million) placing Malaysia
on track to achieve the targetted tourist arrivals
of 20.1 million this year with expected revenue
of RM44.5 billion (2006: 17.5 million; RM38.2
billion). The top tourist generating markets from
January to June 2007 were Singapore (5.3 million),
Indonesia (910,388) and Thailand (817,550) as
shown in chart 3.1.
28
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suited for both rural and urban areas, which

is expected to further boost the broadband
penetration rate. These improvements are in
line with the Governments effort to increase
the national residential broadband penetration
rate to 50.0% by 2010 and thereby narrowing
the digital divide.
innovative offerings. On the other hand, the

number of fixed line subscribers grew marginally
by 0.3% to 4.4 million (end-June 2006: -0.3%;
4.3 million), following the migration of
traditional fixed line customers to mobile
services.
As at end-June 2007, the internet dial-up
subscriber base grew by 3.6% to 3.9 million (endJune 2006: 4.5%; 3.7 million) and is expected
to reach four million by year-end. Consequently,
the broadband subscriber base expanded by
68.4% to 1.1 million with a penetration rate of
4.1% (end-June 2006: 84.9%; 653,100; 2.5%).
Service providers are continuously deploying
broadband infrastructure and services to suburban and rural areas as well as introducing new
attractive packages to increase the broadband
take-up rate. Wireless internet adoption is on
the rise with the number of hotspots nationwide
rising steadily to 1,463 as at end-June 2007
(end-June 2006: 1,320). The award of four World
Interoperability for Microwave Access (WiMAX)
licences in March 2007 enables new players to
provide wider coverage and broad bandwidth
Although electronic media is widely used today,

conventional mail remains a relevant medium
of communication. The overall mail (ordinary
and registered letters and parcels) volume
handled by Pos Malaysia Berhad (PMB) grew
by 7.8% to 652 million items in the first six
months of 2007 (January-June 2006: -2.9%;
605 million). Letter mail increased by 8.0% to
639.7 million items (January-June 2006: -2.6%;
592.2 million) while the parcel segment declined
by 11.9% to 587,977 items (January-June 2006:
12.0%; 667,161). Despite the decline during
the first half of the year, the parcel segment
is anticipated to pick up in the second half to
record positive growth of 8.9% to 1.4 million
items in 2007 (2006: 5.9%; 1.3 million), largely
due to increased activity, consistent with the
29

CONTRIBUTION OF TOURISM TO MALAYSIAS ECONOMIC GROWTH
INTRODUCTION
Tourism, one of the worlds largest and fastest growing industries, accounted for 10.3% of world
gross domestic product (GDP) and provided 234 million jobs or 8.2% of total employment,
worldwide in 2006. The United Nations World Tourism Organisation (UNWTO) forecast international
tourist arrivals worldwide to reach 1.1 billion by the year 2010. Past trends show that traditionally
80.0% of international travel takes place within the same region. In recent years, long-haul travel
has increased, a development which Malaysia can leverage on to increase its share of tourist
arrivals and receipts.
Development of Tourism Industry in Malaysia
The tourism industry has contributed significantly to the Malaysian economy over the last 30
years, particularly in terms of foreign exchange earnings and job creation. The sector has evolved
from one that served domestic and regional tourists in the 1970s to cater for mass tourism in
the 1980s. Since the 1990s, greater emphasis has been given to segment the tourism market,
including developing niche products to increase the volume of high-spending tourists as well as
attract long-haul tourists.
In promoting the industry, the private sector has been encouraged to develop tourism products
to meet market demand, while the Government complements private initiatives by providing
infrastructure and facilities. The emphasis is on improving existing resources as well as developing
more interesting travel and tour products of high quality which provide value-for-money. Among
the measures taken over the years to encourage private sector efforts to develop tourism, include
the setting up of two specific tourism funds, namely, the Tourism Infrastructure Fund and SME
Tourism Fund. These funds are aimed at meeting the increased demand for easier financing
of new tourism projects as well as to expand and upgrade existing tourism infrastructure and
amenities.
To increase participation of the local population in tourism-related economic activities, the
Government has initiated the Homestay programme and Student Tourism Clubs. The Silver Hair
programme was replaced with the Malaysia My Second Home (MM2H) programme in 2002 to
encourage foreign participants to extend their stay in the country. To improve service standards
of frontliners in the industry, the Government initiated training courses such as Think Tourism,
`Eco-Host and `Mesra Malaysia.
Meanwhile, sustainable tourism development will be promoted and this is reflected in the recognition
given by the United Nations Educational Scientific and Cultural Organisation (UNESCO) declaring
Langkawi as a geopark on June 1, 2007, the first in Southeast Asia and 52nd in the world. Langkawi
is the only geopark in the world, comprising 99 islands with duty-free status.
CONTRIBUTION OF TOURISM TO ECONOMIC GROWTH
Tourist receipts and contribution to GDP
The tourism industry has performed favourably. Tourist arrivals have increased almost 15-fold
from 1.2 million in 1974 to 17.5 million in 2006. Likewise, gross earnings have also increased
to RM38.2 billion in 2006, accounting for 6.7% of nominal GDP. Given that Visit Malaysia Year
(VMY) 2007 campaign has been well-received as reflected in higher tourist arrivals in the first
six months of the year, it is anticipated that gross receipts would increase further and contribute
to 7.1% of GDP in 2007.
30

The largest number of tourist arrivals is from ASEAN countries, followed by Japan, China and
Australia. Markets of growing importance include India and the Middle East countries. To accelerate
the momentum of the tourism industry and also realise its full potential, greater efforts are being
taken to position Malaysia as a global tourist destination and promote domestic tourism. These
include focused promotional strategies, developing innovative packages and products, hosting
high-profile events as well as upgrading infrastructure and facilities.
Employment Creation
The tourism industry contributes a significant share of Malaysias total employment. Tourismrelated activities provided 492,000 direct employment in 2006, representing 4.4% of the total
workforce. This is an increase of 26.0% compared to 390,600 jobs in 2000 accounting for 4.2%
of total workforce. However, employment creation is even higher, taking into account the strong
linkages tourism has with other segments of the economy, such as transportation, retail, utilities,
food and beverages, as well as financial services. In addition, tourism also plays a crucial role
in helping low-income groups to improve their livelihood through involvement in tourism-related
activites, such as rural homestay programme, eco and agro-tourism tour guide activities as well
as handicraft industries.
Tourism and Balance of Payments
The tourism industry has been a star performer over the years, with the exception of 2003 when
travel receipts contracted on account of geopolitical tensions in the Middle East and the outbreak
of Severe Acute Respiratory Syndrome (SARS). Gross receipts of the industry have been steadily
increasing at an average rate of 14.1% per year during the period 2000 to 2006. Tourist spending
remains the main contributor to earnings in the services account, generating an average of 45.3%
of gross receipts on an annual basis.
Travel outflows are also on the rise, as more Malaysians travel abroad for business, leisure,
education, health and pilgrimage. Gross payments increased an average of 11.3% per year
during the same period. However, strong tourist spending has cushioned outflows in the services
account, as reflected in the higher net inflows posted over the period. In fact, net inflows have
doubled from RM11.2 billion in 2000 to RM23.5 billion in 2006, improving significantly the deficit
in the services account. For the year, the deficit in the services account is anticipated to improve
further with intensive and concerted efforts underway to woo tourists in tandem with VMY 2007.
Table 1
Services Account of Balance of Payments (Net)
(RM million)
2000
2001
2002
Services
-10,670
-8,366
-5,996 -15,300
Transportation
-11,736 -11,352 -11,572 -13,486 -17,545 -16,433 -19,620 -18,965 -19,102
Travel
Other services
Government
transactions
1
Estimate.
Forecast.
11,158
16,148
17,102
2003
11,523
-10,030 -13,187 -11,242 -13,011

-62
25
-284
-327
2004
2005
2006
20071
20082
-8,199
-9,010
-6,931
-3,985
-4,646
19,096
23,501
27,280
28,604
-9,029 -11,676 -10,378 -11,908 -13,756

-721
Source: Department of Statistics, Ministry of Tourism and Ministry of Finance, Malaysia.
31
19,449
-350
-433
-392
-392

DOMESTIC TOURISM
Domestic tourism also plays an important role in the overall tourism industry. In this regard,
domestic tourism is being actively promoted to attract more Malaysians to travel within the
country. Identified as a high-growth sector, domestic tourism stimulates private consumption,
reduces foreign exchange outflows, as well as enhances greater appreciation of Malaysias natural
endowments. In addition, a strong and vibrant domestic tourism industry can offset fluctuations
in tourist arrivals arising from external shocks, such as natural disasters, pandemic diseases
and security threats.
Among the factors driving domestic tourism include rising household incomes and improved quality
of life. Consequently, Malaysians are travelling more often and taking longer holidays. The rising
number of corporate meetings, incentives and retreats as well as youth camps also contribute
to higher growth of the industry. Additionally, competitive prices offered by budget airlines and
Malaysia Airlines System as well as affordable domestic holiday packages have boosted domestic
tourism. The implementation of the five-day work week for the public sector since July 2005 has
further spurred expansion of the sector.
PROSPECTS
Tourism is expected to remain an important activity, which contributes significantly to the Malaysian
economy. Under the Ninth Malaysia Plan, the overall tourism policy is to realise the sectors full
potential as an important source of growth in terms of income-generation, job creation, foreign
exchange earnings and entrepreneurial development.
In addition to VMY 2007, the Government is embarking on a number of strategies to raise the
image of Malaysia into a quality, premier and value-for-money destination. The focus will be on
quality, which is aimed at changing the present composition of tourist arrivals by giving more
attention to the longer-haul and higher yield segments. To achieve this, the private sector is
expected to come up with more interesting, creative and value-for-money products especially
in the development of niche products and to raise service standards and quality to meet the
demands of high-end tourists.
With aggressive and focused promotional activities, tourist arrivals are expected to increase to
21.5 million in 2008 with anticipated gross receipts of RM49 billion and contribute 7.2% to nominal
GDP. By 2010, the number of tourist arrivals is expected to increase to 24.6 million, generating
receipts of RM59.4 billion and providing 520,700 jobs.
celebration of major festivals and the year-end

holiday season. Meanwhile, despite competition
from foreign and local express delivery service
providers, PMBs courier business continued
to register robust growth, with items handled
increasing by 14.5% in the first six months of
2007 (January-June 2006: -26.8%). Continuous
improvement in the operational capabilities of
PMB, through its extensive network of post
offices and outlets, increased product offerings,
as well as enhanced mode of payment through
credit cards and e-payment support the growth
in the postal segment.
triple Malaysias satellite communication capacity.

Measat-3 will be able to support the growing
demand for the next generation communications
services such as direct-to-home (DTH) television,
broadband and remote connectivity. The DTH
service provider, ASTRO has 2.3 million subscribers
with penetration rate of 35.4 per 100 household
as at end-March 2007 (end-2006: 2.2 million;
34.5%). With Measat-3, Malaysians will not only
be able to enjoy greater selection of television
channels but also have easy access through
internet with high speed connections.
Growth in the transport and storage sub-sector
is expected to accelerate by 7.6% in 2007
(2006: 5.2%) supported by strong performance
As for broadcasting, the launch of Measat-3

satellite in December 2006 is anticipated to
32
in travel and robust trade-related activities.

Backed by increasing growth in world container
trade, container handling at seven major ports
(Klang, Johor, Tanjung Pelepas (PTP), Kuantan,
Penang, Bintulu and Kuching) recorded strong
growth of 14.7% to 7.3 million twenty-foot
equivalent units (TEUs) during the first half of
2007 (January-June 2006: 9.6%; 6.3 million
TEUs). Increased efficiency and productivity
of ports as well as capacity expansion also
contributed to the strong growth. Dredging
activities to deepen wharfs, increasing number
of berths to secure more shipping lines with
larger vessels as well as continuous efforts in
upgrading facilities and services have led to
brisk port activity. Port Klang, which comprises
Northport and Westports, contributed 46.6% of
the total container throughput and handled 3.4
million TEUs, while PTP handled 2.7 million TEUs
or 37.5% of total container handled. Meanwhile,
the number of ships calling at the major ports
increased to 21,729 ships (January-June 2006:
21,710 ships) with Port Klang dominating 38.4%
of the ship calls. Port Klang and PTP have
been continuously included in the World Top
20 Container Ports since 2003.
at end-June 2007 (end-June 2006: 104,000).

Increase in number of buses, frequency of service,
areas served and innovative pricing encouraged
more people to use the bus services. Public bus
services were further enhanced with RapidPenang
commencing operations since 31 July 2007.
Ridership on urban rail services in the Klang
Valley and surrounding areas, improved by 4.5%
to 82 million passengers during the first half of
2007 (January-June 2006: 2.8%; 78.5 million)
due to the introduction of the integrated ticketing
system, increase in capacity, affordable fares
and increased efficiency of service providers.
Growth was also supported by the extension
of the KTM Komuter service from Rawang to
Rasa since April this year, which is expected to
boost passenger volume by two million a year.
Improvements in urban transport services are in
line with the Governments effort to encourage
the use of public transport and reduce traffic
congestion in Kuala Lumpur.
Meanwhile, passenger traffic on the Keretapi Tanah
Melayu Berhad (KTMB) inter-city trains declined
by 7.7% to 1.7 million passengers (January-June
2006: 8.5%; 1.9 million) while revenue earned
contracted by 3.1% to RM32.8 million (JanuaryJune 2006: 7.8%; RM33.9 million). In contrast,
cargo revenue of KTMB recorded strong growth
of 8.4% to RM58.7 million (January-June 2006:
0.3%; RM54.1 million) due to higher demand and
improved services with high-powered locomotives.
These high-speed locomotives are capable of
reducing travel time and able to transport larger
volume of goods as the number of attached
wagons can be increased. Significant progress
was achieved in the northern region, to transport
cargo from Padang Besar to Penang Port, mainly
rubber-based products and processed canned
food from Southern Thailand. Furthermore,
ongoing projects such as the Rawang-Ipoh
electrified double-tracking project, is expected to
further boost passenger and cargo
transportation.
In addition, these major ports have taken initiatives

to provide various support services. Port Klang
has diversified its business to leverage on valueadded services such as providing distribution
park (distripark) services, halal hub services,
vehicle transit centres, handling of conventional
cargo and trade with smaller vessels. PTP
administers the 800-hectare Pelepas Free Zone,
which provides facilities for commercial and
industrial activities. Companies operating in the
free zone are involved in total logistics provision,
distribution and warehousing; shipbuilding,
repair and maintenance; and manufacturing of
electronics, drilling systems for the oil and gas
industry as well as contact lens. As PTP is part
of the Southern economic corridor, investment into
the free zone is expected to pick up, generating
indigenous cargo.
Growth in the air transportation segment was

supported by continued expansion in passenger
traffic although cargo volume registered a decline.
During the first six months of 2007, passenger
volume at the Kuala Lumpur International Airport
(KLIA) rose by 7.3% to 12.5 million (JanuaryJune 2006: 5.4%; 11.7 million), owing partly to
the higher number of tourist arrivals and more
international airlines operating in KLIA. Budget
Land transportation continues to record positive

growth supported by increased land and rail
infrastructure as well as improvements in facilities
and services provided. The number of vehicles
on tolled highways increased to 551 million in
the first half of the year (January-June 2006:
545 million). The average daily ridership on bus
services by RapidKL rose to 161,000 passengers
33
travel on AirAsia surged by 42.6% to 4.5 million

passengers (January-June 2006: 37.2%; 3.1
million). Demand for budget travel was spurred
by aggressive promotional efforts and competitive
fares during the festive and holiday seasons. The
low-cost carrier also gained from quality routings,
increased flight frequencies and connectivity.
Low-cost passenger volume received a further
boost with the setting up of Firefly, a subsidiary of
Malaysian Airlines System (MAS) operating from
Penang since April 2007. As at end-July 2007,
Firefly has carried 47,146 passengers. Prospects
of growth in air transportation continue to remain
upbeat with AirAsia X, launching the long-haul
low-cost service in the fourth quarter of 2007.
in the country, the number of foreigners seeking

treatment is expected to increase. Currently,
the majority of them are from Indonesia,
representing 79.2% of the total, with the rest from
countries such as Japan, Europe, India, China,
United States (US), Singapore, Australia and
Korea.
Growth in the government services sub-sector
is estimated at 4.6% (2006: 9.8%) due to higher
expenditure on public services. This is reflected
in the increased supply and improved quality of
public services.
Manufacturing Sector
Air cargo volume handled by Malaysia Airports

Holdings Berhad contracted by 9.6% to 464
million tonnes during the first six months of
2007 (January-June 2006: 7.8%; 513.5 million
tonnes). The slack in air cargo was due to
the slowdown in electronics exports. Air cargo
volume is likely to pick up in the second half of
the year consistent with the anticipated increase
in electronics exports.
Output driven by domestic-oriented

industries
The manufacturing sector is expected to grow
3.1% in 2007 (2006: 7.1%) supported by domesticoriented industries, particularly chemicals and
chemical products, food and construction-related
industries. During the first half of the year, softer
external demand, particularly for E&E products,
textiles and apparels as well as machinery and
equipment affected the overall performance of
the sector, which grew 0.5% (January-June
2006: 8.8%).
Growth in the utilities sub-sector is expected to

sustain at 4.6% in 2007 (2006: 5.2%). Sales of
electricity grew by 4.8% in the first six months
of the year, on account of increased activities
in trade, industrial and household sub-sectors
(January-June 2006: 3.5%). Maximum demand
for electricity peaked at 13,409 megawatts (MW)
in March 2007 (January-June 2006: 12,842 MW;
June). In addition, water supply to customers
recorded 2.6% growth to 6,247 million litres per
day (mld) (January-June 2006: 5.3%; 6,088 mld),
while metered consumption rose by 4.1% to 3,983
mld (January-June 2006: 4.0%; 3,827 mld).
Output in the domestic-oriented industries grew

5.3% while export-oriented industries contracted
1.9% during the first six months (January-June
2006: 5.0%; 11.1%). Despite contraction in
output, the export-oriented industries continue
to remain as a major contributor to the total
manufactured output. Meanwhile, sales value
of the sector increased 2.9% to RM248 billion
(January-June 2006: 9.4%; RM241 billion),
mainly contributed by the increase in sales of
electronic valves and tubes as well as basic
iron and steel products. During the period under
review, capacity utilisation of the sector edged
higher to 80.4%, particularly, paper, chemical
and rubber-based products.
The other services sub-sector, comprising

community, social, and personal services as well
as imputed rent of owner-occupied dwellings, is
expected to sustain growth of 5.0% in 2007 (2006:
4.7%). This is mainly attributable to increased
activity in private health and education. As at endJune 2007, there are 525 private institutions of
higher education, comprising 36 private universities
and 489 private colleges. The number of foreign
students in Malaysia is expected to increase by
8.4% to 51,310 students in 2007 (2006: 13.9%;
47,320 students), of which, 39,260 students are
in private learning institutions. Meanwhile, with
the vigorous promotion of health tourism and the
improved quality of healthcare services available
Output of domestic-oriented industries, as

shown in Table 3.3, increased at a faster pace
of 5.3% in the first six months of 2007 (JanuaryJune 2006: 5.0%). During the period, major
industry groups, such as food and beverages as
well as construction-related industries recorded
double-digit growth.
34
TABLE 3.3
Manufacturing Production Index

January-June
(2000 = 100)
Index
Industries
Export-oriented industries
Electrical and electronic products
Petroleum products
Textiles, apparel and footwear
Wood and wood products
Rubber products
Machinery and equipment
Medical, optical and scientific instruments
Domestic-oriented industries
Chemicals and chemical products
Non-metallic mineral and other related products
Plastic products
Food products
Transport equipment
Off-estate processing
Fabricated metal products
Basic metals
Paper and paper products
Beverages
Tobacco products
Total
2006
137.1
140.1
157.0
89.2
111.0
137.8
127.9
114.5
136.6
139.4
112.9
178.1
130.3
156.3
128.1
148.2
103.5
127.0
107.3
85.3
136.9
2007
134.5
132.2
170.5
80.2
114.7
148.8
110.4
126.0
143.8
152.2
120.4
171.6
146.9
126.6
118.1
187.0
121.6
146.0
112.1
85.0
137.6
Change
(%)
2006
2007
11.1
-1.9
13.4
-5.6
11.9
8.6
12.6
-10.1
0.9
3.3
0.4
8.0
-1.7
-13.7
8.3
10.0
5.0
5.3
1.7
9.2
-1.9
6.6
21.7
-3.6
1.1
12.7
5.3
-19.0
1.4
-7.8
20.0
26.2
-6.9
17.5
4.1
14.9
-6.8
4.5
-7.0
-0.3
8.8
0.5
Share
(%)
2006
2007
63.7
63.3
39.5
38.3
12.2
13.4
2.5
2.2
3.0
3.0
3.4
3.9
1.9
1.5
1.1
1.1
36.3
36.7
9.2
10.0
3.9
3.7
5.4
5.2
3.6
3.9
3.7
2.7
3.0
2.7
3.4
3.7
1.9
2.0
1.8
1.9
0.4
0.5
0.2
0.2
100.0
100.0

&+$57
The chemicals and chemical products

industry, including agricultural and industrial
chemicals, cosmetics and toiletry products,
paint and soaps, is a significant contributor to
the manufacturing sector. Despite higher crude
oil prices, output of the industry grew strongly
by 9.2% (January-June 2006: 1.7%), which
boosted the industrys share to 10.0% of the
overall manufacturing sector during the period.
The basic chemicals industry recorded solid
growth of 11.8% (January-June 2006: 1.3%)
largely due to higher production of industrial
gases, following increased activities in other
domestic manufacturing industries and stronger
external demand. However, higher input prices
in the oleochemical industry, in particular crude
palm oil (CPO), led to contraction in output
of household and personal care products
as well as pharmaceuticals of 16.0% and
36.0% (January-June 2006: 15.6%; 9.2%),
respectively. Nevertheless, overall output of the
oleochemical industry is expected to increase
further in the second half as manufacturers are
ensured of adequate supply of CPO as input
from their cross-border investments. Output
and sales of pesticides, fertilisers and other
agrochemical products increased by 15.6%
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DQQXDOFKDQJH

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35
and 3.4% (January-June 2006: -6.6%; 17.8%),

respectively during the period, consistent with
higher external demand and domestic usage
by the agricultural sector.
CHART 3.3
Performance of Selected Domestic-oriented

Industries
(% annual change)
Output of the construction-related industry,

as shown in Table 3.4, continued to expand
significantly by 30.8% (January-June 2006:
4.3%) due to strong growth in basic iron and
steel and structural metal products. Production
of both products surged by 29.5% and 62.1%,
respectively, led by an upturn in construction
activity following the implementation of projects
under the 9MP. In addition, with the expected
increase in demand from the property market,
coupled with new plants coming into operation,
prospects for the domestic steel industry remain
favourable. This is expected to boost average
plant production capacity, particularly for flat
products to above 65.0%. Similarly, output
of non-metallic mineral products improved by
13.1% during the first half of 2007 (JanuaryJune 2006: -2.6%) as hydraulic cement and
ready-mix concrete continued to benefit from the
implementation of the Industrial Building System
%
35
%
35
Plastic products
30
30
25
25
20
20
Chemicals
and
chemical products
15
Food products
10
15
10
-5
-5
-10
-10
Q1
Q2
Q3
2005
Q4
Q1
Q2
Q3
2006
Q4
Q1
Q2
2007
Source: Department of Statistics, Malaysia.
TABLE 3.4
in the construction sector. This has helped to

cushion the contraction of 20.0% recorded by
the refractory ceramic products industry.
Growth of the Construction-related Industries

January-June
(2000 = 100)
Change
(%)
Share
(%)
2006
2007
2006
2007
4.3
30.8
7.5
7.4
-0.9
-2.7
1.6
1.4
Non-metallic mineral
products
-2.6
13.1
2.3
2.2
Structural metal products,

tanks, reservoirs and
steam generators
39.7
62.1
1.1
1.2
Wire, wire products and

metal fasteners
36.3
-11.3
0.8
0.8
-10.6
29.5
0.8
0.9
-2.8
10.9
0.9
0.9
Construction-related
Industries
Glass and glass products
Basic iron and steel

Other basic precious and
non-ferrous metals
Output of the food products industry grew

significantly by 12.7% (January-June 2006: 1.1%).
This was driven by higher output in processing
and preserving of fish and fish products, which
grew by 27.1% in tandem with increased marine
fish landings. In addition, the robust growth of
food products was also supported by increased
output of dairy (16.0%) and grain mill products
(7.0%), in particular, rice milling which increased
17.7%, benefiting from higher production of paddy.
Meanwhile, other food products, particularly, sugar
refinery and biscuit products also registered
double-digit growth ranging between 23.0%
and 25.0%. The better performance in the
food products industry was also due to greater
efforts undertaken by the industry to keep pace
with advancement in technology and changes in
consumer preference.
36
Output of transport equipment, which was affected

by continued decline in domestic sales of motor
vehicles since June 2006 further contracted by
19.0% in the first half of 2007 (January-June
2006: 5.3%). Lower production and sales of motor
vehicles were partly due to tighter hire purchase
loan conditions and increase in fuel prices. The
depressed used car market also affected the
overall performance of the transport equipment
industry. Consequently, the declining trend led
to contraction of 13.4% (January-June 2006:
22.5%) in production of automotive parts and
components. However, the industry is anticipated
to recover during the second half of 2007 due to
rising disposable income and introduction of new
models. Efforts to penetrate Chinas automotive
market by the local manufacturers will also
enhance production and sales of passenger cars
and improve the performance of the transport
equipment industry.
Downward trends were observed in some major

groups of domestic-oriented industries, namely
off-estate processing, plastics and transport
equipment industries. Output of the off-estate
processing industries, comprising mainly palm
oil and rubber, contracted by 7.8% (January-June
2006: 1.4%) constrained by supply of latex and
CPO. The plastic products industry registered
a decline in output and sales of 3.6% and 0.7%
(January-June 2006: 21.7%; 13.3%), respectively,
due to lower demand for components from the
E&E and transport equipment industries as
well as lower supply of petroleum feedstock.
This was reflected in the sharp decline in the
production of plastic bags and films as well
as plastics blow moulded products by 25.1%
and 14.0% (January-June 2006: 44.9%; 1.1%),
respectively. However, plastic injection moulded
products continued to record strong growth of
20.1% (January-June 2006: 17.5%), in part due
to increased demand for packaging materials
by the beverages industry as well as plastic
parts for automobile components meant for the
export market.
Export-oriented industries contracted in the first

six months of 2007 following the downtrend in
the global demand for E&E products, particularly
office and accounting machines as well as
video and communication apparatus. This was,
however, mitigated by strong growth recorded in
the medical, optical and scientific instruments,
and resource-based industries, particularly rubber
and petroleum products. Production of medical,
optical and scientific instruments was boosted
by strong demand from health services, while
growth in rubber-based industries was supported
by the booming automotive industry, particularly
in China. Similarly, higher production in woodbased industries was supported by product
innovation in wooden furniture to cater for the
global market as well as to meet local demand
of the construction industry.
&+$57
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4
4
4

4
4
4
4

4
4
4
Output of E&E industry as shown in Table 3.5,

declined by 5.6% (January-June 2006: 13.4%)
on account of weak global demand. Production
of semiconductors experienced lower negative
growth of 0.3% (January-June 2006: 14.8%)
while office, accounting and computing machinery
as well as audio visual and communication
apparatus contracted by 18.0% and 14.5%
(January-June 2006: 26.1%; 1.7%), respectively.
The semiconductors industry worldwide is facing
stiff competition as manufacturers are investing
in production of higher density memory chips at
lower average prices. Nevertheless, electrical
machinery and apparatus posted strong growth

6RXUFH'HSDUWPHQWRI6WDWLVWLFVDQG0LQLVWU\RI)LQDQFH0DOD\VLD
37
The rubber-based industry continued to register

growth of 8.0% (January-June 2006: 0.4%),
contributing 3.9% share to total manufacturing
output. In line with higher domestic and external
demand, sales of rubber products also increased
7.4% (January-June 2006: 34.6%) during the same
period. Rubber gloves, the largest component of
the rubber-based industry, recorded a turnaround
of 3.6% (January-June 2006: -1.8%), arising
from higher usage in health services. Likewise,
sales of latex-based catheters also registered
double-digit growth of 66.5% (January-June
2006: -21.9%). Malaysian rubber gloves and
catheters made from natural rubber latex are
highly demanded for their unique mix of high
elasticity and tensile strength of properties as
well as excellent film-forming characteristics.
TABLE 3.5
Growth of the E&E Industry

January-June
(2000 = 100)
Change
(%)
Share
(%)
2006
2007
2006
2007
Total Manufacturing
8.8
0.5
100.0
100.0
Total E&E products
13.4
-5.6
39.5
38.3
14.8
-0.3
24.4
24.6
1.7
-14.5
6.0
5.5
Office, account and

computing machinery
26.1
-18.0
6.9
6.2
Electrical machinery
and apparatus
-7.2
13.9
1.6
1.8
Domestic appliances
6.3
-53.5
0.3
0.2
Semiconductors and
other components
Audio visual and
communication
apparatus
Output of medical, optical and scientific

instruments posted strong growth of 10.0% in
the first six months of the year (January-June
2006: 8.3%) mainly contributed by increased
demand for medical and surgical equipment as
well as orthopaedic appliances, which registered
double-digit growth of 37.8% (January-June 2006:
17.5%). This sterling performance was due to
rising domestic and external demand, especially
from the Association of Southeast Asian Nations
(ASEAN) region, for upgrading healthcare
facilities and services, private hospitals and
clinics as well as health conscious consumers.
The medical and surgical equipment as well
as orthopaedic appliances are fast becoming a
niche export for Malaysia. Within the optical and
scientific instruments group, output of watches
and clocks, turned around and registered 10.0%
growth (January-June 2006: -0.4%) while sales
increased by 12.5% (January-June 2006: -14.8%).
The strong sales reflect continuous efforts by the
industry to upgrade production of precision and
middle-to-high range products to meet changing
consumer taste.
of 13.9%. Given the importance of the E&E

sub-sector, which accounts for 38.3% of total
manufacturing sector, efforts are being taken
to develop the E&E clusters. Among measures
taken are the development of more innovative
and higher value added products and services,
especially in the area of advanced integrated
circuits and packaging. Capacity utilisation of
the industry remains high at above 80.0% as
manufacturers expect better performance in the
second half of the year.
The capital intensive wood-based industry,
comprising veneer, panel products, mouldings,
furniture and fixtures, expanded by 3.3% during
the first half of the year (January-June 2006:
0.9%). Growth was mainly driven by increase in
production of laminated boards and veneers, at
5.4% and 2.3% (January-June 2006: -15.2%; 5.9%),
respectively. Higher exports to major markets
such as Japan and the EU also contributed to
the growth of the industry. Increasing demand
for customised furniture components as well as
greater awareness for high quality and certified
sawn timber products among furniture makers
is also expected to further enhance growth of
the industry.
In line with lower production of crude oil, output

of petroleum products grew moderately by 8.6%
in the first six months of the year (January-June
2006: 11.9%). Lower supply of feedstock and
weak external demand resulted in slower growth
in sales of 0.9% for refined petroleum products
(January-June 2006: 23.7%). The high price for
Tapis crude oil which averaged USD69 per barrel
during the first six months of the year, led to
high input costs for petroleum products.
38

UPSCALING MALAYSIAS ELEcTRICAL AND ELEcTRONICs INDUSTRY
INTRODUCTION
The electrical and electronics (E&E) industry is the key driver of Malaysias industrial development
and a major contributor to gross domestic product (GDP) growth, export earnings, investment
and employment. This article analyses the status of the domestic E&E industry and highlights
Governments initiatives at encouraging local manufacturers to move up the value chain to fully
realise their potential in the industry.
POLICIES AND STRATEGIES TO PROMOTE E&E IN MALAYSIA

In the 1960s, industrial policy was mainly inward looking, focused on import-substitution and labour
intensive industries to overcome the high unemployment rate. In addition, projects were encouraged
to be located at less developed areas to address uneven regional development. This was facilitated
by the Pioneer Industries (Relief from Income Tax) Ordinance, 1958 and Investment Incentives Act,
1968, which provided tax relief or Pioneer Status to investors. Even so, industrial development was
constrained by the small domestic market and limited capital, with unemployment remaining high.
Recognising limitations of the inward looking policy, there was a strategic shift in the industrialisation
process towards export-oriented industries in the 1970s. To provide greater employment opportunities,
labour intensive and export-oriented industries such as electronics and textiles were encouraged.
Taking cognisance of the relocation of multinational companies (MNCs) to lower operating cost
environment, incentives and facilities were offered to attract them. These included development of
industrial estates, free trade zones and local manufacturing warehouses. Tax incentives include import
duty exemption on raw materials and Reinvestment Allowance. Consequently, there was a significant
influx of foreign direct investment (FDI) particularly in the E&E industry with the first semiconductor
factory set up in Penang in 1972. The E&E industry subsequently grew with clusters in Penang and
the Klang Valley and further expanded to Malacca, Kulim and Johor Bahru. As at end-2006 more
than 1,600 companies were in operation and employing more than 433,800 workers.
The Ninth Malaysia Plan
The E&E industry, in particular electronics, has been targeted as one of the key industries to move
towards higher level of technology adoption and to produce greater value-added outputs. In this
regard, the E&E cluster in the Northern Corridor Economic Region comprising Penang and Kulim
High Technology Park (KHTP) will be further developed. A privately initiated hi-tech electronics hub
will be established to complement KHTP.
The presence of the MNCs in the industry will remain significant. Nevertheless, local manufacturers
have developed the skills and expertise to support the MNCs requirement for parts and components.
Local manufacturers are encouraged to move higher up the value chain through enhancing their
capability in design and develop indigenous products to meet demand for high value and more
sophisticated products. In the global competitive environment, local manufacturers must have extensive
collaboration with each other, research institutions and participating MNCs so as to enhance their
innovation capabilities to move into higher value-added activities in the E&E value chain.
39

Third Industrial Master Plan
The Third Industrial Master Plan (IMP3) provides a clear plan of action to move the E&E industry
up the value chain. Among the strategies are:
Strengthening and deepening the semiconductors sub-segment;
Intensifying research and development (R&D) and design activities;
Deepening and widening the development of the information and communications technology
(ICT) value chain;
Promoting the application of new and emerging technologies;

Integrating domestic companies into the regional and global supply chain; and
Making available skilled workforce.
In addition, the IMP3 proposed strengthening of institutional support, including a comprehensive

package of support schemes to encourage investments as well as expanding the role and functions
of industry associations. With the comprehensive implementation of action plans, the E&E industry
is anticipated to further strengthen and migrate towards knowledge-intensive, high-technology and
higher value-added activities.
CURRENT STATUS OF THE E&E INDUSTRY

Contribution to the Economy
In 2006, the electronics industry achieved 9.6% growth while the electrical industry grew 3.6%, as
shown in Table 1, surpassing the targeted average annual growth rate of 7.7% and 3.0%, respectively,
under the 9MP. The electronics industry remains as the major contributor at 30.7% share to total
value added of the manufacturing sector while its share to GDP was significant at 9.6%.
Table 1
Value Added of the E&E Industry
(in 2000 prices)
Electronics
Year
Manufacture
of office,
accounting
and
computing
machinery
(RM million)
Electrical
(Electrical
Machinery and
Apparatus)
Manufacture
Total E&E
of radio, TV, Total Electronics
communications
equipment and
Value
Growth
Value
Growth
Value
Growth
apparatus
(RM million) (%) (RM million) (%) (RM million) (%)
(RM million)
2001
8,078
22,487
30,565
-13.5
2,039
-45.9
32,604
-16.6
2002
8,822
24,347
33,169
8.5
2,197
7.8
35,366
8.5
2003
9,559
26,235
35,794
7.9
2,392
8.9
38,186
8.0
2004
10,309
29,278
39,587
10.6
2,572
7.5
42,159
10.4
2005
10,987
30,450
41,437
4.7
2,749
6.9
44,186
4.8
2006
12,790
32,630
45,420
9.6
2,848
3.6
48,268
9.2
40

In terms of exports (Table 2), the industry recorded an average share of 53.2% to total manufactured
exports during the period 2001-2006. Major export destinations for Malaysias E&E products are
Singapore, the US, EU, Japan and Taiwan while China is emerging as an important market. The
export pattern of the industry shows that the E&E industry is driven by global demand, particularly
for semiconductors. The worldwide market for semiconductors is anticipated to grow 1.8% (USD270
billion) in 2007 and 8.5% (USD293 billion) in 20081, thus providing further impetus to growth for
the industry in Malaysia.
Table 2
Performance of Malaysia E&E Industry
Exports, Production and Employment by Year
Export of E&E
Year
a
b
c
Value
(RM million)
Share To
Totala (%)
2001
189,486.5
56.7
2002
201,203.3
56.3
Production
Index of E&E
Growth
y.o.y (%)
Employment in E&E
Share To
Totalb (%)
Workforce
(000)
Share To
Totalc (%)
-18.4
33.7
535.1
21.6
8.5
34.8
493.9
19.0
2003
210,724.0
53.0
15.3
36.1
471.9
17.0
2004
241,687.1
50.2
20.9
38.8
465.2
15.7
2005
264,698.9
49.6
4.8
38.6
468.4
14.9
2006
281,017.3
47.7
9.0
39.2
495.4
15.3
Total manufactured exports.

Total production of the manufacturing sector, based on Industrial Production Index.
Total employment in the manufacturing sector.
Source: Department of Statistics and Malaysia External Trade Development Corporation.
Investment in the E&E Industry

Malaysia is a major player in the fast expanding E&E market in Asia-Pacific. Over the past three
decades, Malaysia has attracted some of the worlds leading electronics MNCs. The share of FDI
in the E&E industry (Table 3) has increased steadily from 46.0% in 1985 to 85.8% in 2006. The
relatively strong growth in FDI particularly in E&E industry reflects the confidence of investors,
emanating from the favourable investment climate, good infrastructure, sound legal and regulatory
framework as well as skilled and multilingual labour force.
The E&E industry continues to expand and reinvest, bringing in new technology and processes to
move further up the value chain. This is reflected in the total approved investments and increasing
capital-investment-to-employee ratio (CIPE). The IMP3 targets the industry growth rate at 7.2%
or RM5.5 billion per annum, with total approved investment of RM82.4 billion by 2020. As total
investment approved for the industry in the first half of this year was RM8.5 billion, Malaysia is on
track to achieve the IMP3 target.
Source: Semiconductor Industry Association, US.
41
The robust growth in investment during the first half of 2007 further triggered imports of intermediate
and capital goods, which accounted for 71.5 % (RM171.2 billion) and 13.2% (RM31.5 billion) share
to total imports, respectively. This high proportion of imports of intermediate goods indicates that
there is strong potential for local manufacturers to upgrade and produce value-added products to
meet the demand for intermediate goods domestically.
Table 3
Approved E&E Projects
Investments (RM million)
FDI to
CIPE Ratio
Total
Capital
Workforce
(RM)
Investment
(%)
Year
Number of
Projects
Approved
2002
178
1,645.5
4,005.4
5,650.9
70.9
24,754
228,283
2003
185
1,347.7
3,629.9
4,977.6
72.9
17,488
284,628
2004
195
1,800.9
6,826.0
8,626.9
79.1
24,530
351,686
2005
227
2,474.8
11,318.9
13,793.8
82.1
47,317
291,518
2006
170
1,422.2
8,601.5
10,023.7
85.8
24,293
413,536
Domestic
Investment
FDI
Total
Capital
Investment
Source: Malaysia Industrial Development Authority.
Malaysian Electronics Industry: A Gap Analysis

Malaysias E&E industry has been pursuing an export-driven developmental model that relies on
relative operating cost advantage and FDI. This model has resulted in a local industry that is
dominated by MNCs with very few domestic companies. Concerted efforts from all stakeholders is
required to increase the number of domestic companies and help them move to higher value-added
activities, as shown in Chart 1. While the Government has been accommodative to the needs of
the industries, only a few local manufacturers embraced the call for higher value-added activities,
particularly in design and indigenous products development and technologies, since the 1990s.
This entails an in-depth study of the E&E value chain to identify the current position of Malaysian
owned manufacturing companies in the entire value chain.
In general, Malaysian companies have gained considerable experience in assembly and testing, where
it involves large volumes, low value-added activities amidst a highly cost competitive environment,
resulting in limited technology transfer. Thus, Malaysian companies largely remain as component
manufacturers with limited capability to expand into higher value-added activities, particularly product
conceptualisation and design. In addition, Malaysian companies continue to face challenges in
penetrating E&E marketing channels, which is dominated by MNCs. In contrast, Taiwan has been
able to foster a dynamic original design manufacturer industry, capturing the higher value-added
activities of product conceptualisation and design, while South Korea has been able to move into
original brand manufacturer (OBM) space, hence strengthening its market presence.
42

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STRENGTHENING MALAYSIAS PRESENCE IN E&E INDUSTRY

Strengthening and Deepening of the Semiconductors Cluster
The cluster concept, particularly in the semiconductor industry, underpins the Governments effort
to strengthen the E&E industry. The synergies arising out of locating related companies operating
along the entire E&E value chain will enable them to optimise benefits and minimise cost. In this
regard, the further development of existing semiconductors cluster in Penang and KHTP in Kedah
will help to attract more investment into all aspects of the value chain, creating a critical mass of
companies and expanding markets, which will further strengthen the E&E industry.
Leveraging on ICT and New Emerging Technologies
The E&E and ICT industries enjoy a symbiotic relationship. Riding on advancement in the latter,
which include services such as internet facilities; convergent products such as personal digital
assistant (PDA); as well as parts and components including disk drives and data storage media,
have enhanced the growth performance of the E&E industry, in particular industrial electronics. New
technology for both industries include microelectromechanical systems (MEMS) such as smart sensors,
43

WiMAX, high performance grid computing, language design and protocol as well as creative content.
In addition, the new and emerging technologies promoted under the IMP3 such as biotechnology,
cognitive technology and nanotechnology will further strengthen the E&E industry in Malaysia. The
Government, in collaboration with industry, will establish the Electronic Industry Advisory Panel to
spur the development and promotion of new and emerging technologies as well as identify local
companies capable of applying them.
Intensifying Research and Design Capability
Generally in the E&E industry, higher value-added and revenue generating activities are design
and fabrication. For example, in the manufacturing of integrated circuits (IC), design and fabrication
accounts for 80% of the total revenue generated. However, local companies are mainly engaged in
assembly, packaging and testing, which accounts for 8-12% of total revenue, as shown in Chart 2.
Local companies must therefore position themselves to take advantage of the various incentives and
funds provided by the Government to elevate themselves into higher value activity of design and
fabrication. To make the transition, local companies need to develop skills, knowledge, and integrate
into the wider E&E network. Towards this end, several agencies such as Malaysia Technology
Development Corporation, Multimedia Development Corporation and Malaysia Biotechnology Corporation
are actively engaged in providing R&D and commercialisation funds, including Techno Fund, Inno
Fund, Technology Acquisition Fund to develop significant design and indigenous R&D capability and
technologies as well as the creation of Malaysian-owned multinational electronic companies.
CHART 2
INTEGRATED CIRCUITS INDUSTRY: REVENUE GENERATED BY ACTIVITIES
6DOHV 0DUNHWLQJ
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Developing Human Resource Capacity and Capability

To sustain R&D capability and enhance innovation through design and product development, significant
investment in human capital development is a prerequisite. The human capital development for
the E&E industry requires industry-specific efforts to ensure that training and upgrading of skills
are focussed on design and product development. Institutions of higher learning have begun to
review their curriculum more frequently while their industry attachment programmes have a strong
emphasis on developing skills to meet industry requirements. In addition, the skills development
centres provide further training to fresh graduates and industry workforce to upgrade design
capabilities. These efforts will help produce a pool of skilled and talented manpower required to
help companies position themselves into the higher value-added segments of the E&E value
chain.
Several programmes are in place to facilitate human resource development for the E&E industry.
For the Microsystems programmes, there are various courses such as IC and printed circuit board
design, IC packaging technology and application, nano-electro-mechanical system and design of RF
as well as analog IC. These courses are higly regarded by the industry as they were developed
44

with world class design centres such as the Toppan Technical Design Centre, Japan; Silicon Valley
Technical Institute, USA; and IPC, USA. In addition, the Malaysian Institute of Microsystems (MIMS)
under the Selangor Human Resource Development Centre (shrdC) has established an advance
technology centre of learning for design development and innovation particularly in IC design.
The training programmes, involving short term and continuous professional up-skilling courses
for fresh graduates, technical staff and industry engineering professionals to equip them with the
right competencies and innovative capabilities. In addition to these training programmes, facilities
for activities from designing to prototyping are also available in MIMS to industry players, on a
time-sharing basis. In terms of funding, Pembangunan Sumber Manusia Berhad, which manages
the Human Resource Development Fund helps defray the training cost incurred by the industry in
upgrading technical and soft skills of their employees.
Creation of Centres of Excellence
Another strategic initiative by the Government for strengthening the E&E sector is the creation of
Centres of Excellence. These centres will be responsible for providing technology support, R&D
facilities, incubators for start-ups, market intelligence and access to funding for the industry. In the
IMP3, measures will be introduced to promote the specialisation of R&D by creating Centres of
Excellence in public universities. Specifically, USM has been designated for microelectronics; UTM
and MMU for ICT; UKM for MEMS and UM for photonics.
In line with the mandate given, USM spearheaded the upgrading of the Collaborative
Micro-Electronic Design Excellence Centre (CEDEC) into a Centre of Excellence, comprising seven
universities with USM as the secretariat. The CEDEC initiative towards fulfilling the value-added
aspiration of the nation can be summarised as below:
Increasing the pool of IC designers to create a larger critical mass of designers. Third and
fourth year electronic and electrical engineering students in the seven universities are allowed
to opt for microelectronic specialisation;
Support fabrication foundries by creating local clusters of design houses and enhance
universities design skills in fabrication;
Encourage local fabless start-ups through strengthening development and technological
capabilities as well as encourage entrepreneurial spirit to spawn start-ups; and
Enabling and intensifying systems design capabilities through developing hardware and software
design engineers, which in turn will create systems design and manufacturing ecosystem.
CEDEC has enabled collaboration and coordination in design activities amongst its members. In
order to further enhance this cooperation, Fabless Malaysian Integrated Circuit Design Association
(MICDA) was formed in June 2007. The formation of MICDA and the upgrading of CEDEC fast
tracks efforts to uplift design activities as well as in grooming more Malaysian designers and product
developers.
CONCLUSION
Despite Malaysias long reliance on the E&E industry, local manufacturers have largely confined
themselves to the low value-added segment of the industry. However, since the E&E sector contributes
significantly to the manufacturing sector, greater benefit can be realised if the industry progresses
to the higher value segments. Towards this, the strategies initiated by the Government focusing on
semiconductor clusters; leveraging on ICT; enhancing R&D capabilities and capacities; developing
human resource and creation of centres of excellence will play a crucial role in strengthening the
E&E industry and ensure that local players move up the value chain.
At the national level, tangible benefits can be derived through strengthening and enhancing the
E&E industry. Significant revenue increases can be reaped by progressing to higher levels of the
value chain. In addition, with the increasing focus on design and development elements of the value
chain, it is anticipated that the import bill for intermediate products can be reduced. Furthermore,
moving up the value chain will provide the opportunities and potential for establishing horizontal
and vertical linkages within the E&E and other industries. In the long run, involvement in the higher
value added activities of the E&E value chain will allow Malaysia to establish international brands
and link up with the global supply chain.
45
The production of textiles, apparels and

footwear industry declined by 10.1% in the first
six months of 2007 (January-June 2006: 12.6%).
The decline was due to 21.4% contraction in
output of textiles and 2.5% in apparels (JanuaryJune 2006: 9.8%; 31.4%), as a result of stiff
competition from low-cost producing countries, in
particular China, India, Thailand and Viet Nam.
However, output and sales of the knitted and
crocheted products rebounded 24.3% and 4.8%
(January-June 2006: -11.8%; 0.8%), respectively,
as manufacturers rationalised their production
process through improved quality and achieved
economies of scale. In an effort to improve profit
margins, the textile and apparels manufacturers
are engaging in outsourcing and cross-border
investments.
TABLE 3.6
Value Added in the Agriculture Sector

2006-2007
(in 2000 prices)
Growth
(%)
Production of machinery and equipment

industry including air conditioning, refrigerating
and ventilating machinery, contracted 13.7%
during the first six months of 2007 (JanuaryJune 2006: -1.7%) on account of lower sales of
5.9% (January-June 2006: 2.8%). Weakening
sales during the period, resulting from lower
domestic and external demand, led to lower
capacity utilisation of 60.0%.
Share to
Agriculture
(%)
2006
20071
2006
Agriculture
5.2
3.1
100.0
100.0
Oil palm
5.8
-0.6
30.5
29.4
Rubber
12.6
1.0
6.9
6.7
Forestry and logging
-0.4
2.8
22.2
22.1
Other agriculture2
5.3
7.0
24.6
25.7
Fishing
9.3
5.2
15.8
16.1
1
2
20071
Estimate.
Including livestock, paddy, cocoa, fruits, vegetables, copra, tobacco,
tea, flowers, pepper and pineapples.
the National Feedlot Centre and Permanent Food

Production Parks, nurturing agro-entrepreneurs
as well as promoting contract farming. The
proposed agriculture related developments in
the Northern Corridor Economic Region (NCER)
is envisaged to further boost the contribution of
the agriculture sector to GDP growth.
Agriculture Sector
Continues to expand, supported by food
commodities
Value added of the agriculture sector is estimated
to expand by 3.1% in 2007 (2006: 5.2%), with
growth emanating largely from higher output in
food commodities including livestock, fishing and
other agriculture sub-sectors. Higher value added
of the agro-food sub-sector is in line with the
Governments efforts to reduce the import bill
of food and to increase the self-sufficiency level
(SSL), especially for meat and dairy products.
Meanwhile, value added of the plantation subsector is projected to slow down due to the
unfavourable weather conditions in Peninsular
Malaysia in the early part of the year. Despite
the moderate growth, the agriculture sector share
to GDP remains at 7.7% in 2007 (2006: 7.9%).
The Governments continuous efforts to transform
the agriculture sector into an important engine of
growth can be seen through various programmes
initiated by respective agencies, including high
impact agricultural projects such as setting up of
Production of CPO in 2007 is projected to

record lower output of 15.7 million tonnes (2006:
15.9 million tonnes). In the early part of the
year, major floods destroyed newly matured
trees and disrupted harvesting activities in the
southern region of Peninsular Malaysia and
was further compounded by the seasonal down
cycle. Production of CPO in Johor, the worst-hit
state by the floods, declined by 15.5% during
the first quarter of 2007. Nevertheless, the new
matured areas coming onstream, better estate
management and higher quality agricultural inputs
are expected to partially offset the negative impact
of unfavourable weather. Higher palm oil prices
are expected to encourage better efficiency in
oil palm harvesting.
Production of CPO decreased by 8.0% during
the first six months of 2007 (January-June
2006: 1.3%), due to lower yields of fresh fruit
46
bunch (FFB) on account of tree stress after

peak production in late 2006 and lower output
from flood-affected areas in early 2007. FFB
yields declined 9.7% to 8.2 tonnes per hectare
(January-June 2006: 0.7%; 9.1 tonnes per
hectare) in the first six months of 2007. However,
oil extraction rate (OER) for the same period
improved to 20.0% (January-June 2006: 19.7%).
The total oil palm planted area is expected
to increase by 2.7% to 4,277,548 hectares in
2007 (2006: 2.8%; 4,165,215 hectares) with
3,813,597 hectares comprising matured areas.
Of the 4,277,548 hectares, 2,531,604 hectares
is owned by the private plantation companies,
while 923,525 hectares operated under Federal
Land Development Authority (FELDA), Rubber
Industry Smallholder Development Authority
(RISDA) and Felcra Berhad plantation schemes,
with the remaining 822,419 hectares owned by
independent smallholders and state agencies.
The new oil palm areas are mainly in Sarawak
(22,844 hectares) and Sabah (16,156 hectares).
Sabah has the largest oil palm planted area
with 1,267,262 hectares or 29.6% of the total
planted area. Malaysia remains the worlds
largest palm oil producer, accounting for about
43.0% of world output.
TABLE 3.7
Oil Palm Area and Palm Oil Production

2006-2007
Change
(%)
2006
20071
Planted areas
(000 hectares)
4,165
4,278
2.8
2.7
Matured areas
(000 hectares)
3,703
3,814
2.0
3.0
15,881
15,690
6.1
-1.2
1,956
1,900
6.1
-2.8
19.6
19.0
3.8
-3.1
2006 20071
Production
(000 tonnes)
Crude palm oil
Palm kernel oil
Yield (tonnes/hectare)2
1
Estimate.
Fresh fruit bunch yield.
Source: Ministry of Plantation Industries and Commodities and

Ministry of Finance, Malaysia.
importers, slashed import duties on crude and

refined palm oil as part of the efforts to contain
rising inflation. In the US, more food producers
and fast-food chains are switching to trans-fatty
acid-free oil such as palm oil. Following the
ban by New York City on the use of trans-fatty
acids in eateries effective 1 July 2007, other
cities in the US are expected to take similar
action. These developments will have positive
impact on the price of CPO which is estimated
to remain high at RM2,400 per tonne in 2007
(2006: RM1,503 per tonne).
The global stock of palm oil is expected to

decrease in 2007 due to lower supply and
increased demand from major markets in
particular China, coupled with higher demand
from the biodiesel industry. Palm oil stock in
Malaysia for the first six months averaged 1.3
million tonnes, a drop of 17.9% (January-June
2006: 1.6 million tonnes; 12.5%). Projection of
higher world demand for vegetable oils and fats
and palm-based biofuel industry as well as tight
supply are expected to push CPO prices to higher
levels. The average CPO price for the first seven
months of 2007 registered an increase of 60.4%
to RM2,266 per tonne as against RM1,413 per
tonne in the corresponding period of 2006. The
local delivered CPO price soared to an all-time
high of RM2,886 per tonne in June 2007. The
surge in the price of CPO was largely due to
tight supply and increasing global demand for
edible oils and biodiesel as well as increased
prices of substitutes, particularly soya bean and
rapeseed oils. In addition, Indonesia, the worlds
second largest producer of CPO after Malaysia,
restricted exports of CPO by imposing higher
export duty to meet local demand of cooking
oil. India, one of the worlds largest edible oil
Despite strong rubber prices, rubber production

for the first six months of 2007 declined 3.5%
to 589,379 tonnes (January-June 2006: 17.9%;
610,512 tonnes). The decline was mainly due
to the wintering season and excessive rainfall,
especially in the first quarter of the year, which
disrupted tapping activity. For the year, production
of rubber is projected to expand 1.3% (2006:
14.0%) with output expected to increase in the
second half of the year. Meanwhile, rubber planted
areas continued to decline to 1,201,000 hectares
(2006: 1,225,000 hectares) as a result of low
prices prior to 2006, which discouraged replanting
activities. Nevertheless, given the importance of
47
Value added of the fishing industry, on the

other hand, expanded by 4.0% in the first six
months of 2007 (January-June 2006: 9.4%). The
expansion was attributed to higher marine fish
landings by 5.1% to 656,580 tonnes (JanuaryJune 2006: 11.4%; 624,600 tonnes), mainly due
to expansion in deep sea fishing. The increase
in marine fish landings is partly due to positive
response to the Governments initiatives such
as large-scale community-based marine fish
farms, construction of artificial reefs and fish
shelters as well as upgrading fishing vessels and
related equipment. The completion of the deep
sea fishing port in Tanjung Manis, Sarawak will
further boost marine fish landings. In addition,
investment by Malaysian International Tuna Port
Sdn Bhd, a joint venture company between the
Government and the private sector to establish the
first integrated tuna fishing port in Batu Maung,
Penang, will further develop Malaysias fishing
industry. This 105-hectare port is capable of
accommodating 100 ships at any one time and
able to attract 2,000 international tuna fishing
boats and is expected to create up to 10,000
jobs. Meanwhile, value added of aquaculture
is projected to grow strongly due to increase
in output by 80.6% to 369,000 tonnes (2006:
-1.4%; 204,360 tonnes). High impact projects
initiated by Government such as Aquaculture
Industrial Zone in Terengganu which comprise
2,800 hectares and focus on high value species,
including tiger prawn and grouper as well as
ornamental fish, are projected to further spur
the aquaculture industry.
downstream activities, the Government continues

to provide assistance to small holders to increase
the acreage under rubber. Efforts are also being
made to consolidate and rehabilitate rubber
smallholdings to increase productivity.
Natural rubber price (SMR 20) is estimated to
remain strong in 2007 at RM7.00 per kg (2006:
RM7.11 per kg) as synthetic rubber is expected
to record high prices in tandem with increased
crude oil prices. In addition, projection of higher
demand from the tyre industries of China and
India is expected to further lend support to rubber
prices. During the first six months of the year, the
average export price of rubber (SMR 20) was at
RM7.00 per kg (January-June 2006: RM6.94 per
kg). Supply constraints due to adverse weather
conditions and continued strong global demand,
especially from China, contributed to the firm
price. The favourable price of natural rubber is
expected to benefit 320,671 rubber smallholders
by raising their monthly income to RM700 per
hectare in 2007 (2006: RM676 per hectare) as
higher rubber prices encourage them to increase
tapping and replanting activities.
TABLE 3.8
Rubber Area, Yield and Production

2006-2007
Change
(%)
Total area
(000 hectares)
Smallholdings
Estate
Yield (kg per hectare)
Smallholdings
Estate
Total production
(000 tonnes)
Smallholdings
Estate
% of world production
1
2006
20071
2006
20071
1,225
1,201
-2.0
-2.0
1,172
53
1,153
48
3.3
-53.9
-1.6
-9.4
1,350
1,525
1,380
1,545
2.3
10.4
2.2
1.3
1,284
1,300
14.0
1.3
1,215
68
1,230
70
14.5
5.2
1.2
2.9
13.3
13.0
Value added of livestock is also projected to

expand strongly by 10.5% for 2007 (2006: 6.9%)
and account for 9.9% share of the agriculture
sector. Integrated farming with rearing of cattle
and goats in oil palm estates and feedlot cattle
rearing contributed to the higher output of livestock
sub-sector. In addition, modern poultry farming
such as closed house system also resulted in
higher output of the poultry industry. As a result,
value added of livestock for the first six months
of the year grew strongly by 12.0% (January-Jun
2006: 9.4%), underpinned by higher production
in poultry (11.9%) and cattle (8.1%).
Estimate.
Source: Ministry of Plantation Industries and Commodities and

48
Kong, Netherlands, Germany and United Arab

Emirates.
TABLE 3.9
Production of Other Agriculture

2006-2007
Cocoa production declined in the first six months

of 2007 due to inclement weather early this
year. In addition, following the decline in planted
areas due to land conversion by smallholders
to other profitable crops, production of cocoa
contracted by 1.5% to 19,055 tonnes (JanuaryJune 2006: 37.1%; 19,348 tonnes). Meanwhile,
paddy production is also projected to increase
due to increase in productivity and supported
by the Governments efforts to be self-sufficient.
Output of paddy is expected to increase 5.7%
in 2007 (2006: -6.9%) on account of improved
yield per hectare. Yield per hectare is estimated
to increase to 3.8 tonnes per hectare (2006:
3.5 tonnes per hectare) in Peninsular Malaysia
due to further consolidation of padi smallholding
and better estate management and utilisation of
higher yield clones.
(000 tonnes)
Cocoa
Paddy
Livestock
Meat2
Poultry
Eggs (million)
Milk (million litre)
2006
20071
Change
(%)
2006 20071
32
2,154
30
2,277
14.1
-6.9
-6.0
5.7
244
1,035
7,751
45
269
1,159
8,200
51
3.2
5.6
5.0
10.6
10.2
12.0
5.8
12.4
1,135
19
591
24
158
146
1,190
20
623
20
166
161
12.0
4.8
-5.0
5.3
1.8
5.3
96.9 -15.3
6.6
5.1
43.2 10.2
Miscellaneous agriculture

Fruits3
Pepper
Vegetable
Copra
Pineapple
Flowers (million cutting)
Estimate.
Including beef, swine and mutton.
3
Consists of star fruit, papaya, durian, guava, mangoesteen,
banana, rambutan, watermelon, and dokong.
1
2
Mining Sector
Source: Ministry of Agriculture and Agro-Based Industry and Ministry

of Plantation Industries and Commodities, Malaysia.
Growth supported by new oil fields coming

onstream
Growth of the mining and quarrying sector is
forecast to expand 3.3% in 2007 (2006: -0.4%),
underpinned by higher production of crude oil
and natural gas in the second half of the year.
During the first six months, production of crude
oil (including condensates) increased 2.7% to
678,207 barrels per day (bpd) (January-June
2006: -3.3%; 660,589 bpd) due to resumption
of production after completion of maintenance
and rejuvenation of major oil platforms. In 2007,
production of crude oil is expected to increase
3.5% to 690,000 bpd (2006: -5.2%; 666,925
bpd). In addition, the Kikeh oil fields situated
off Sabah, is expected to come onstream in the
third quarter of 2007. As crude oil and natural
gas are depleting resources and given the high
crude oil prices which is expected to remain
firm in the medium term, more exploration
activities especially for deep water oil and gas
fields are being carried out. As a result, in 2007,
four new fields were discovered off Peninsular
Malaysia, Sarawak and Sabah. Reserves for
crude oil and condensates now stands at 5.4
billion barrels and is estimated to last 22 years
Value added of other agriculture sub-sector

which includes paddy, pineapples, tobacco,
coconut, vegetables, fruits, tea and pepper is
projected to increase strongly by 5.0% in 2007
(2006: 4.2%) on the back of higher production
of vegetables and fruits. Expansion in cultivated
areas, intensive implementation of estate-based
production such as permanent food production
parks as well as modern and good farming
practice, including organic farming are expected
to increase production of vegetables. Value added
of vegetable farming improved further by 8.8%
in the first six months of the year (January-June
2006: 6.1%). Similarly, value added of fruits
also increased further by 1.9% (January-June
2006: 6.8%) due to expansion of fruit cultivated
areas and higher domestic demand. Fruits such
as star fruit, watermelon and papaya are also
gaining popularity in the international market. In
2006, 240,000 tonnes of fruits were exported
to major importers such as Singapore, Hong
49
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Following stronger domestic demand from power

generation and manufacturing sectors, natural
gas production increased 4.4% to 1,083,103
million standard cubic feet (mscf) (January-June
2006: -4.5%; 1,037,178 mscf) during the first
six months of 2007. LNG production is also
expected to increase due to robust gas demand
in Asia Pacific, particularly Japan, South Korea
and Taiwan. New markets such as China and
India have also embarked on LNG importation
terminal projects which augurs well for the
future expansion of Malaysias LNG exports. The
Petronas LNG Complex in Bintulu is currently
the worlds largest LNG production facility at a
single location producing 21.5 million tonnes of
LNG per year.
(2006: 5.3 billion barrel; 21 years), while gas

reserves are at 88.92 trillion standard cubic
feet sufficient for 39 years (2006: 87.95 trillion
standard cubic feet; 34 years). The increased
activities of oil and gas exploration and production,
have spurred demand in oil and gas related
industries, including chemical industry, equipment
manufacturing, steel fabrication as well as air
and sea charter services.
Global crude oil prices continue to increase as
due to supply constraints, lack of skilled manpower
as well as increasing cost of exploration and
production. Daily charter rates for drilling rigs
have increased by more than 200.0% while
prices of steel and line pipes increased by about
40.0%. At the same time, demand particularly
from China and US are strengthening. Against
this backdrop, global oil prices were sustained
at above USD65 per barrel (pb) (West Texas
Intermediate) levels during the first seven months
of 2007. In line with high global oil prices during
the same period, average export price of Tapis
blend crude oil remained high at USD70.98pb
(January-July 2006: USD71.25pb).
Despite strong tin prices, output of tin declined

8.3% to 1,100 tonnes (January-June 2006:
-19.6%; 1,202 tonnes) as a result of uneconomical
production and limited land for mining activity.
In addition, increasing cost of production due to
higher energy prices also discouraged mining
activity. In line with lower world tin production
and increased demand in global market, average
50
price of tin traded on the Kuala Lumpur Tin Market

strengthened further to USD13,385 per tonne
(January-June 2006: USD8,088 per tonne).
TABLE 3.10
Production and Reserves of Crude Oil and

Natural Gas
2006-2007
Construction Sector
Buoyant construction activities
Change
(%)
2006
20071
2006 20071
Value added of the construction sector increased

significantly by 4.4% in the first half of 2007
(January-June 2006: -1.2%), after recording a
turnaround in the fourth quarter of 2006. The
expansion was largely led by increased civil
engineering activity, following the implementation
of 9MP projects. For the whole year, the sector
is envisaged to register a growth of 5.2%
(2006: -0.5%).
Crude oil
Production
(000 barrels per day)2
666.9
690.0
-5.2
3.5
Reserves
(billion barrels)
5.3
5.4
1.7
2.1
Reserves/production
(years)
21
22
(million standard cubic

6,258.9 6,439.6
feet per day) (mmscfd)
8.0
2.9
Reserves (trillion standard

87.95
cubic feet)
3.2
1.1
Natural gas
Production3
Reserves/ production
(years)
88.92
34
The civil engineering sub-sector continues

to benefit from large allocation in federal
development expenditure in 2007. Growth in
the sub-sector also emanated from ongoing
projects such as the Pantai Timur (Phase II)
Highway, Kuala Lumpur-Putrajaya Highway and
Duta-Ulu Kelang Expressway. Implementation of
projects in the Iskandar Development Region
(IDR), which include State Administrative Centre,
roads and highways, housing and waterfront
city are expected to provide further impetus to
the construction sector. Other civil engineering
activities such as the flood mitigation project in
39
Estimate.
Including condensates.
3
Excluding flaring and reinjection.
1
2
Source: Petroliam Nasional Berhad (PETRONAS).
TABLE 3.11
Major Ongoing Construction Projects

9MP Construction Projects
Iskandar Development Region (IDR) Projects
Pantai Timur (Phase II) Highway, Terengganu
State Administrative Centre, Nusajaya
Duta-Ulu Kelang Expressway
Cleaning of Seget River, Skudai River and

Tebrau River
Kuala Lumpur-Putrajaya Highway
Construction of two elevated interchanges in

Jalan Tampoi
Construction of Senai Interchange
Upgrading of Perling Interchange
Upgrading of Kota Kinabalu Airport, Sabah

Government Quarters in Putrajaya Phase III
Universiti Teknologi MARA Puncak Alam
Campus
Construction of Istana Negara, Jalan Duta,
Kuala Lumpur
Northern Corridor Economic Region (NCER)

Projects
Sentul-Batu Caves Double-Tracking project
Second Penang Bridge

Upgrading of Penang Bridge
Source: Economic Planning Unit, Malaysia.
51
take-up rates of 57.1% and 42.8% respectively

(April-June 2006: 3.6%; 33.6%). Government
proactive measures such as the exemption of
Real Property Gains Tax (RPGT), the removal
of the limitation on the number of loans given to
non-residents and the lifting of Foreign Investment
Committee approval on foreign ownership of
residential properties above RM250,000 are
expected to support the sub-sector.
CHART 3.6
Residential Supply Indicators

units
('000)
units
('000)
4,500
720
Existing stock
Q1 Q2 Q3
4,000
Q4
Incoming supply
Planned supply
right scale
right scale
676
On the supply side, developers optimism was

boosted by the establishment of the one-stopcentre to expedite approvals for development
of housing projects and incentives offered to
developers who undertake the build-then-sell
concept. In tandem with these developments,
new sales and advertising permits for construction
of residential units and shophouses as well
as renewals of such permits increased to 490
and 874 (January-June 2006: 488 permits; 790
permits) respectively. Loans by the banking system
for residential property also rose by 7.4% to
RM167,549 million (end-June 2006: RM156,044
million). Reflecting the improvement in demand
and consumer sentiment, the Malaysian all
House Price Index trended upwards by 3.6%
during the first half of 2007 (January-June 2006:
1.9%), with higher-than-average prices recorded
in Klang Valley and Penang.
3,500
632
3,000
2,500
588
2,000
544
1,500
1,000
2003
2004
2005
2006
2007
500
Source: National Property Information Centre (NAPIC).
the Klang Valley, construction activity in the oil

and gas industry and the construction of RM1.4
billion Asia Petroleum Hub in Tanjung Bin, Johor
will contribute significantly to the growth of the
sector.
The non-residential sub-sector registered a better

performance in line with the strong economic
performance during the first half of 2007. This
was reflected by increased construction activity
especially for office buildings. The incoming
supply of office space rebounded by 19.2% at
end-June 2007 (end-June 2006: -15.9%). The
newly completed buildings with a combined area
of 126,871 square metres (sqm), boosted the
existing stock level of office space to 14,680,860
sqm (end-June 2006: 142,427 sqm; 14,412,571
sqm). The buoyant growth in new business
activities, particularly banking, information and
communications technology (ICT) and outsourcing
has led to higher occupancy rate of office space
of 84.9% at end-June 2007 (end-June 2006:
84.4%).
Activity in the residential sub-sector moderated

after housing developers responded to the
cautious buying sentiment following the higher
inflation and interest rates in 2006. As a result,
low-and-medium property developers have
largely deferred their new launches, resulting in
lower housing starts of 65,045 units (JanuaryJune 2006: 85,025 units) during the first half
of 2007. However, with stable interest rate and
lower inflation, purchasing sentiment picked up
in second quarter of 2007 as reflected by the
take-up rate of newly launched residential units
which improved to 30.8% (April-June 2006:
11.0%). The high-end property market (more than
RM250,000) performed better, as seen in the
newly launched detached houses and high-end
condominium segments which registered higher
Construction activity of retail space, on the other

hand, softened with incoming supply declining
6.7% at end-June 2007 (end-June 2006: 36.6%).
However, with the completion of five new shopping
complexes during the period, existing stock of
52
CHART 3.7
Non-residential Supply Indicators

sq. meter
('000)
3,000
Incoming Supply
units
50,000
Industrial units
Shops
Retail spaces
Office spaces
Occupancy Rate
90
90
right scale
Office spaces
2,500
40,000
80
Retail spaces
80
2,000
30,000
1,500
70
70
Hotels (3-5 star)
20,000
1,000
60
60
10,000
500
Q1
Q3
2003
Q1
Q3
2004
Q1
Q3
2005
Q1
Q3
2006
Q1
2007
50
Q1
Q3
2002
Q1 Q3
2003
Q1 Q3
2004
Q1 Q3
2005
Q1 Q3
2006
Q1
2007
50
Source: National Property Information Centre (NAPIC).
retail space increased to 8,124,391 sqm (endJune 2006: 4 new shopping complexes; 7,533,704
sqm). The overall occupancy rate remained high
at 79.8% (end-June 2006: 80.1%).
during the period, followed by agricultural (20.0%),

commercial (8.8%), development (4.9%) and
industrial (2.6%).
A total of eight new hotels with 967 rooms were

completed during the first six months of 2007
(January-June 2006: 4 hotels; 780 rooms). The
existing stock level increased to 2,180 hotels with
149,820 rooms (end-June 2006: 2,154 hotels;
147,510 rooms). The vigorous promotion of VMY
2007 improved the average occupancy rate of
3-5 star rated hotels to 64.4% during the second
quarter of 2007 (April-June 2006: 58.4%).
Domestic Demand Performance

Growth spearheaded
demand
by
domestic
The strong economic growth in 2007 will be

driven by higher domestic demand expenditure of
9.0% (2006: 7.0%). The private sector continues
to be the main engine of growth spurred by
strong private investment and buoyant consumer
spending. Public sector expenditure is also
expected to expand although its share to GDP
remains lower than private expenditure as shown
in Table 3.12.
The volume of property transactions increased

3.0% to reach 135,189 transactions in the first
half of 2007 (January-June 2006: -4.1%; 131,313
transactions). However, value of transactions
increased 12.4% to RM32.3 billion (JanuaryJune 2006: 0.9%; RM28.8 billion) reflecting the
general improvement in buying sentiment of
the property sector, in particular, the high-end
residential segment. Residential transactions
accounted for 63.6% of the total transactions
Private sector expenditure is envisaged to

strengthen further by 8.6% (2006: 7.0%) in line
with positive consumer sentiment and favourable
business environment. The strong performance
of the private sector is supported by various
53
pro-business measures, including reduction in

corporate tax rate and accommodative monetary
policy. Additionally, private sector income is
expected to increase significantly by 9.9% (2006:
12.5%) due to higher economic activity and
better terms of trade. Consequently, the private
sector is expected to contribute 5.2 percentage
points to economic growth with a higher share of
61.5% to total GDP (2006: 4.2 percentage points;
60.1%). On the other hand, the public sector is
expected to expand by 10.1%, contributing 2.4
percentage points to GDP growth (2006: 6.8%;
1.6 percentage points). As a result, aggregate
domestic demand (excluding change in stocks)
is projected to strengthen to 9.0% (2006: 7.0%).
Amidst moderate expansion in global trade,
contribution to growth from external demand
is expected to be sustained, supported by firm
commodity prices and an upturn in demand for

E&E products towards the second half of the
year. Import growth, particularly capital and
intermediate goods, is anticipated to accelerate at
a faster pace in tandem with increased domestic
economic activity.
Private investment is projected to grow by 7.1%
with a share of 11.6% to GDP in 2007 (2006:
7.0%; 11.5%), following improvement in the
business environment. The Business Conditions
Index (BCI) recorded a three-year high of 122.1
points in the second quarter of 2007 (AprilJune 2006: 102.4 points), indicating increased
optimism of investors on Malaysias economic
outlook. The favourable performance of private
investment is reflected in several key investment
indicators, as shown in Chart 3.8. These include
TABLE 3.12
Gross Domestic Product (GDP) by Aggregate Demand

2006-2008
(in 2000 prices)
Change
(%)
Share of GDP
(%)
Contribution to
GDP growth
(percentage point)
2006
20071
20082
2006
GDP
5.9
6.0
6.0-6.5
100.0
100.0
100.0
5.9
6.0
6.0-6.5
Domestic demand3
7.0
9.0
6.8
84.1
86.5
86.9
5.8
7.6
5.9
Private expenditure
7.0
8.6
8.2
60.1
61.5
62.7
4.2
5.2
5.1
Consumption
7.1
9.0
7.9
48.6
49.9
50.8
3.4
4.4
4.0
Investment
7.0
7.1
9.5
11.5
11.6
11.9
0.8
0.8
1.1
Public expenditure
6.8
10.1
3.2
24.0
25.0
24.2
1.6
2.4
0.8
Consumption
5.0
10.8
5.5
12.9
13.5
13.4
0.6
1.4
0.7
Investment
8.9
9.3
0.5
11.1
11.5
10.8
1.0
1.0
0.1
-0.2
-0.2
0.4
0.1
-0.1
0.7
Change in stocks
20071
20082
2006
20071
20082
External sector
0.1
-9.6
-1.9
16.1
13.7
12.7
0.0
-1.5
-0.3
Exports4
7.4
4.1
5.7
125.0
122.7
122.0
9.1
5.2
6.9
Imports4
8.6
6.2
6.6
108.9
109.0
109.3
9.1
6.7
7.2
572.6
625.1
681.7
10.2
9.2
9.1
GDP (RM billion, current value)

Change (%)
1
2
3
4
Estimate.
Forecast.
Excluding change in stocks.
Goods and services.
54
higher imports of intermediate goods, production

of hydraulic cement as well as iron and steel
in the first six months of 2007. The expansion
in investment activity was spurred by higher
capacity utilisation in the manufacturing sector
which increased to 80.4% in the second quarter
of 2007 from 70.0% in the first quarter.
&+$57
Private Investment Indicators

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Results from the Business Expectation Survey

conducted by the Department of Statistics
Malaysia (DOSM) for the first half of 2007 also
indicated higher capital outlay by the private
sector which increased by 16.6% (January-June
2006: -13.2%). The services sector is expected
to contribute the largest share to capital outlay at
48.6%, followed by mining and electricity (23.7%),
manufacturing (23.1%) and agriculture (2.6%).
Investment in the services sector is expected
to emanate from transport and communication
as well as financial intermediation. Approved
projects for domestic direct investment (DDI) in
the manufacturing sector increased significantly
by 71.3% to RM14.3 billion during the first six
months of the year (January-June 2006: 28.1%;
RM8.4 billion), mainly in petroleum, basic metal,
chemicals and chemical product and E&E
industries. Meanwhile, total loans disbursed by
the banking system, excluding the household
sector, increased 12.9% to RM35,876 million
during the first six months (end-June 2006:
-4.5%; RM31,775 million). A large portion of
loans disbursed was for the manufacturing sector
(including agro-based) (31.2%), followed by
wholesale, retail trade, restaurants and hotels
(20.6%) as well as finance, insurance and business
activities (18.3%). During the same period, loans
disbursed to SMEs increased by 2.0% to RM67.5
billion constituting 36.2% of total business loan
disbursed in the banking system (January-June
2006: 35.2%; RM66.1 billion).

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Malaysia continues to attract FDI amidst a

competitive environment. In the first quarter of
2007, total net FDI recorded a robust growth
of 54.1% to RM5,697 million (January-March
2006: 21.2% to RM3,696 million). Manufacturing
continued to be the main contributor with a share
of 52.2% to total FDI, followed by wholesale
and retail trade (26.4%), financial intermediation
(16.8%) as well as mining and quarrying (7.7%).
Meanwhile, approvals for foreign investment in
manufacturing projects increased strongly by

H
55

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114.1% to RM14.5 billion in the first six months

of 2007 (January-June 2006: 3.5%; RM6.8 billion),
mainly in E&E (53.3%), petroleum (20.5%),
chemicals and chemical products (6.3%) and
non-metallic mineral industries (6.1%).
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Growth in private consumption is expected

to increase 9.0% and account for 49.9% of
GDP in 2007 (2006: 7.1%; 48.6%). Key factors
underpinning the increase in private consumption
include a supportive financial environment backed
by low and stable interest rates, and higher
disposable income arising from stable employment
prospects, salary adjustments for civil servants
as well as positive wealth effect from a bullish
stock market and strong commodity prices.
The uptrend in private consumption spending
is reflected in the Consumer Sentiments Index
(CSI), which recorded a significant increase of
11.7 points in the second quarter of 2007 to 115.9
points (April-June 2006: 104.2 points). During
the first six months of 2007, major consumption
indicators, especially food sales and services
tax collection, registered double-digit growth of
17.9% and 12.5% (January-June 2006: 1.4%;
0.3%), respectively. Credit card transactions and
consumption credit grew strongly by 21.1% and
7.1% (end-June 2006: 16.2%; 21.3%), respectively.
Meanwhile, sales of motorcycles expanded by
4.5% (January-June 2006: 3.6%).

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Public consumption is estimated to expand

10.8% (2006: 5.0%), mainly due to larger
expenditure on supplies and services as well as
higher emolument. The expenditure on supplies
and services is to improve the administrative
machinery and delivery system of the public
sector while higher expenditure on emolument
is due to the salary adjustment for civil servants
of between 7.5% and 35.0% effective 1 July
2007. Meanwhile, public investment is expected
to increase 9.3%, with a share 11.5% to GDP
(2006: 8.9%; 11.1%), largely underpinned by
ongoing development projects.

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National Resource Position

Healthy resource position to support

growth
National income in current prices continues to
record robust growth of 9.4% in 2007 (2006:
12.0%) in line with expansion in domestic
economic activities and firm commodity prices.

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56
TABLE 3.13
Savings-Investment Gap
2006-2008
(in current value)
2004
2005
2006
RM million
20071
20082
Public Sector
Savings
Gross capital formation
Surplus/Deficit
73,000
48,744
24,256
70,506
53,480
17,026
83,079
58,761
24,318
84,030
65,385
18,645
86,214
66,968
19,246
Private Sector
Savings
Gross capital formation3
Surplus/Deficit
93,569
60,523
33,046
110,493
51,837
58,656
128,876
59,775
69,101
138,242
66,923
71,319
150,765
81,297
69,468
Overall
Gross national savings
(as % of GNP)
166,569
37.0
180,999
36.5
211,955
38.2
222,272
36.6
236,979
35.8
Gross capital formation3

(as % of GNP)
109,267
24.3
105,317
21.3
118,536
21.4
132,308
21.8
148,265
22.4
57,302
12.7
75,682
15.3
93,419
16.8
89,964
14.8
88,714
13.4
Surplus/Deficit
(as % of GNP)
1
2
3
Estimate.

Forecast.
Including change in stocks.
Despite higher consumption spending growth of

12.7% (2006: 9.7%), Gross National Savings
(GNS) continues to expand by 4.9%, constituting
36.6% of Gross National Product (GNP) (2006:
17.1%; 38.2%). Private sector accounts for
62.2% of total GNS (2006: 60.8%), which can
be mobilised to finance domestic investments.
Total investment, including change in stocks, is
expected to increase strongly by 11.6% (2006:
12.6%) mainly from private sector initiatives.
Consequently, the savings-investment gap
in 2007 is envisaged to continue to record a
surplus of RM90 billion or 14.8% of GNP (2006:
RM93.4 billion; 16.8%), reflecting the countrys
strong economic fundamentals.
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Trade Performance
Export Performance

Exports to pick up momentum
3XEOLFVHFWRU
VDYLQJV

H

Exports moderated to 1.1% (January-June

2006: 10.5%) in the first six months of the year
amidst continued soft external demand for E&E
products, in particular semiconductor devices,
automatic data processing (ADP) machines and
parts as well as telecommunications equipment
H
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57
TABLE 3.14
Gross Exports
2006-2007
RM million
2006
Manufactured goods
Change
(%)
20071
Share
(%)
2006
20071
2006
20071
479,674
489,734
10.1
2.1
81.4
79.3
Agricultural goods
39,091
52,245
14.6
33.6
6.6
8.5
Mining goods
55,824
60,438
9.3
8.3
9.5
9.8
Others
14,377
14,814
11.7
3.0
2.4
2.4
588,966
617,229
10.3
4.8
100.0
100.0
Gross Exports
1
Estimate.
and parts. However, export growth is expected

to pick up momentum towards the second
half of the year, supported by firm commodity
prices and an upswing in the global demand for
E&E products. For the year, gross exports are
expected to remain strong despite a moderate
expansion in global trade. Gross export earnings
free on board (f.o.b) are projected to grow at
4.8% (2006: 10.3%) contributed by manufactured
goods which comprise 79.3% of total exports.
Meanwhile, robust global demand for major
commodities such as palm oil, crude petroleum
and LNG is expected to boost export receipts of
agriculture and mineral products by 33.6% and
8.3% (2006: 14.6%; 9.3%), respectively. Given
the strong performance, Malaysia is expected to
record a trade surplus for the 10th consecutive
year since 1998.
During the first half of 2007, exports of non-E&E

grew 8.9% (January-June 2006: 16.1%) supported
by higher growth in exports of resource-based
products, in particular, chemicals, plastics, rubber
as well as iron, steel and metal. In addition,
firm demand for food, beverages and tobacco
was reflected in double-digit growth in export
earnings of the industry.
Exports of chemicals and plastic products
posted robust growth of 22.1% to RM20,128
million during the first six months of the year
(January-June 2006: 2.4%; RM16,488 million).
Growth was underpinned by exports of chemicals
which rebounded strongly by 31.8% (January-June
2006: -3.6%) on account of strong demand for
organic and inorganic chemicals, particularly from
China and Thailand. Meanwhile, steady demand
from ASEAN, China and Japan saw significant
growth of 16.8% in exports of essential oils,
perfumes and cleaning preparations (JanuaryJune 2006: 11.7%).
Exports of Manufactured Goods

Strong exports of resource-based manufactured
goods
Another major component, plastic products, grew

10.8% in the first six months of 2007 (JanuaryJune 2006: 10.2%) in response to increasing
demand from ICT and medical devices industries.
Singapore, Japan and Thailand are among the
major markets for plastic products. Exports of
plastic products to the EU saw an increase
following the conclusion of anti-dumping and
anti-subsidy investigations in 2006, on plastic
carrier bags imported from Malaysia. In addition,
Malaysias move to ban the import of plastic
Export earnings of manufactured goods rose

marginally by 0.5% during the first half of
2007 (January-June 2006: 10.1%) mainly due
to weak global demand for E&E products as
shown in Table 3.15. However, strong growth
in the exports of resource-based manufactured
goods cushioned the moderation in E&E
exports.
58
TABLE 3.15
Exports of Manufactured Goods

January-June
Value
Change
(RM million)
Share
(%)
(%)
2006
2007
2006
2007
2006
2007
143,088
44,976
61,294
36,817
136,759
46,453
54,811
35,495
6.9
1.0
13.8
3.7
-4.4
3.3
-10.6
-3.6
62.9
19.8
26.9
16.2
59.8
20.3
24.0
15.5
84,532
92,073
16.1
8.9
37.1
40.2
16,488
12,098
11,081
6,713
5,408
5,448
4,249
5,067
1,587
16,394
20,128
11,473
12,674
7,363
4,954
6,287
4,961
4,003
1,824
18,407
2.4
34.9
29.3
5.2
8.9
13.3
28.1
80.0
12.0
6.2
22.1
-5.2
14.4
9.7
-8.4
15.4
16.7
-21.0
14.9
12.3
7.2
5.3
4.9
2.9
2.4
2.4
1.9
2.2
0.7
7.2
8.8
5.0
5.5
3.2
2.2
2.7
2.2
1.7
0.8
8.0
227,619
228,832
10.1
0.5
100.0
100.0
Electronics, electrical machinery and

appliances
Semiconductors
Electronic equipment and parts
Machinery and electrical products
Non-E&E
Chemicals, chemical and plastic products
Petroleum-based products
Iron, steel and metal products
Wood based products
Textiles, apparel and footwear
Food, beverages and tobacco
Rubber-based products
Transport equipment
Non-metallic mineral products
Other manufactured goods
Total
synthetic products. The US remains the largest

export market, with a share of 24.1% of total
exports valued at RM1,197 million (January-June
2006: 25.6%; RM1,089 million). China is the
fastest growing market for Malaysia, with exports
increasing by 32.7% during the first six months of
2007.
waste to be recycled and used as inputs in the

production process effective October 2007, will
ensure greater acceptability of domestic plastic
products worldwide.
Exports of iron, steel and metal products
remained firm at 14.4% to RM12,674 million
during the first six months of 2007 (JanuaryJune 2006: 29.3%; RM11,081 million) buoyed
by high prices and strong external demand.
Robust construction activities, particularly in the
Asian region, coupled with construction activity
related to the up-coming 2008 Olympic Games in
Beijing, China, will further boost export earnings
of the industry.
Growth in exports of food, beverages and

tobacco products remained impressive at 15.4%
(January-June 2006: 13.3%) with Singapore,
Indonesia and the US as the major export
destinations. Export receipts of food products
increased by 15.9% (RM5,268 million) while
beverages 106.5% (RM580 million) as a result of
continuous efforts by manufacturers to attain quality
assurance and accreditation for Malaysias food and
beverages products. Concerted efforts to
develop Malaysia as world halal hub to
capture new markets worldwide would provide
impetus for further growth of the local food
industry.
Exports of rubber-based products rose 16.7%

during the first six months of 2007(January-June
2006: 28.1%) despite a global shortage in the
supply of natural rubber, which pushed up the price
of latex. However, rationalisation and optimization
undertaken in the production process has made
Malaysian rubber products competitive vis--vis
59
&+$57
&+$57
3HUIRUPDQFHRI6HOHFWHG0DQXIDFWXUHG([SRUWV
0DOD\VLD
V([SRUWVRI6HPLFRQGXFWRUVDQG
:RUOGZLGH6DOHVRI6HPLFRQGXFWRUV
DQQXDOFKDQJH
DQQXDOFKDQJH

7RWDOPDQXIDFWXUHGH[SRUWV
,URQVWHHODQGPHWDOSURGXFWV
&KHPLFDOVFKHPLFDODQG
SODVWLFSURGXFWV
( (
)RRGEHYHUDJHVDQGWREDFFR

5XEEHUSURGXFWV

4
4

4
4
4
4

4
4
4
4

:RUOGZLGHVDOHVRIVHPLFRQGXFWRUV

0DOD\VLD
VH[SRUWVRIVHPLFRQGXFWRU
4
4

4
4
4
4

4
4
4
4

6HPLFRQGXFWRU,QGXVWU\$VVRFLDWLRQ86
192.6%; RM603 million) while exports to India

grew 18.4% to RM536 million (January-June
2006: 24.5%; RM452 million).
Export earnings of wood-based products also

recorded strong growth of 9.7%. (January-June
2006: 5.2%) following increased demand from
major markets such as Taiwan, Japan and the EU.
In addition, lower tariffs imposed under JapanMalaysia Economic Partnership Arrangement
which became effective in July 2006 further
enhanced export receipts of wood-based products.
Sustained demand for Malaysian veneer, plywood
and wooden furniture in traditional markets as
well as increasing demand from emerging markets
such as United Arab Emirates and India bode
well for the industry.
Overall export earnings of transport equipment

fell by 21.0% to RM4,003 million during the first
six months of 2007 (January-June 2006: 80.0%;
RM5,067 million) following lower exports by 46.4%
in other vehicles such as railway vehicles and
associated equipment as well as ships, boats and
floating structures. The road vehicles, however,
registered strong growth of 32.5% (January-June
2006: 0.5%) supported by higher demand for
parts and accessories of motor vehicles, motor
cycles as well as passenger motor vehicles,
excluding buses. Exports of transport equipment
are envisaged to further expand with increase
in demand, particularly from China.
Exports of petroleum products contracted by

5.2% to RM11,473 million during the first six
months of 2007 (January-June 2006: 34.9%;
RM12,098 million) on account of lower production
of crude oil. Republic of Korea, India, Japan,
Singapore and China continue to be the major
export markets for Malaysia. Exports of petroleum
products to Republic of Korea increased sharply
by 86.0% to RM1,121 million (January-June 2006:
Meanwhile, exports of E&E products declined

by 4.4% during the first half of 2007 (JanuaryJune 2006: 6.9%) on account of lower exports of
electronic equipment and parts (-10.6%) as well
60
the year with export value for palm oil forecast

at RM34,545 million (2006: RM22,687 million).
Presently, Malaysia is the largest exporter of
palm oil accounting for 62% of world exports,
and 22% of global exports of vegetable oils and
fats. Export earnings of palm kernel oil (PKO)
rebounded significantly by 40.0% to RM1,305
million in the first half of 2007 (January-June
2006: -18.9%; RM932 million) resulting from
higher export volume of 523,292 tonnes due
to higher external demand. During the same
period, export price of PKO increased further to
RM2,494. With sustained high PKO prices, total
export earnings of PKO for the year is expected
to reach RM2,565 million.
as machinery and electrical products (-3.6%). The

slowdown in demand for E&E products, as shown
in Chart 3.12, was however, mitigated by improved
performance in the exports of semiconductors
which grew by 3.3% (January-June 2006: 1.0%).
Despite lacklustre performance, E&E exports
remained the major component, constituting
59.8% of total manufactured exports.
Exports of Primary Commodities

Export earnings backed by firm commodity
prices
Export receipts from primary commodities are
projected to increase 18.7% to RM112,682
million in 2007 (2006: 11.4%; RM94,916 million),
mainly contributed by higher export earnings
of palm oil, palm kernel, crude oil and natural
gas. Export receipts of agriculture commodities
for the first half of 2007, increased 13.6% to
RM20,044 million (January-June 2006: 3.8%;
RM17,640 million), representing 7.1% of gross
exports (January-June 2006: 6.4%). The strong
performance was on account of higher commodity
prices and increased global demand for CPO
and rubber. Meanwhile, export receipts of mining
increased slightly by 0.9% to RM27,705 million
(January-June 2006: 17.7%; RM27,464 million)
largely due to marginal increase in export of
crude oil. Share of mining proceeds to gross
exports was sustained at 9.8% (January-June
2006: 9.8%).
Despite strong global demand and firm prices,

export earnings of rubber, declined 15.6% to
RM4,010 million) following lower production as a
result of poor weather conditions. Consequently,
export volume declined by 16.3% to 483,542
tonnes (January-June 2006: 4.5%; 577,657
tonnes) while average export price was sustained
at RM7.00 per kg. The firm rubber price was
due to rising external demand, especially from
China, Germany, US and France, and higher
price of synthetic rubber. China remains the
largest importer of Malaysias rubber, accounting
for 31.4% of total exports followed by Germany
(14.5%), US (5.9%) and France (5.5%). Malaysia
remains the third largest exporter of natural
rubber after Thailand and Indonesia, accounting
for 11.0% of world export.
Export volume of crude petroleum increased
slightly by 0.1% to 8.37 million tonnes in the first
half of 2007 (January-June 2006: -5.4%; 8.36
million tonnes) on account of sustained global
demand for crude oil. Export unit value was
lower at RM1,750 per tonne during the period
(January-June 2006: RM1,912 per tonne). As a
result petroleum receipts fell 8.4% to RM14,640
million (January-June 2006: 24.3%; RM15,976
million). Crude petroleum is exported mainly to
Singapore, India, Thailand, Republic of Korea
and Indonesia.
Export volume of palm oil declined by 8.3% to

6.1 million tonnes during the first half of 2007
(January-June 2006: -1.6%; 6.6 million tonnes)
due to lower production of palm oil as a result
of bad weather conditions in the first quarter of
2007. For the year, export of palm oil is projected
to decrease 2.2% to 14.1 million tonnes (2006:
7.3%; 14.4 million tonnes). China remains the
largest importer of Malaysias palm oil, accounting
for 27% of total palm oil export, followed by
the Netherlands (13%), Pakistan (8%) and US
(5%). Rising global demand for biofuels and tight
supply conditions pushed the average export
unit value of palm oil to RM2,076 per tonne in
the first six months of the year. Consequently,
export value for the first half of 2007 improved
further to RM12,609 million (January-June
2006: RM9,866 million). CPO export price is
expected to stabilise at RM2,450 per tonne for
In contrast, export earnings of LNG increased

further by 14.9% to RM12,878 million (JanuaryJune 2006: 11.4%; RM11,205 million) due to
robust demand from Japan, Taiwan and South
Korea which accounted for 98.9% of total exports.
Export volume of LNG rebounded significantly
61
TABLE 3.16
&+$57
Primary Commodity Exports

2006-2007
3ULPDU\&RPPRGLW\([SRUWV
2006
Palm oil2
Volume (000 tonnes)
Unit Value (RM/tonne)
Value (RM million)
2006
20071
([SRUWV

14,423 14,100
1,573
2,450
22,687 34,545
7.3
5.6
13.3
-2.2
55.8
52.3
50WRQQH

4 4 4 4
/RFDOFUXGHSDOPRLOSULFHULJKWVFDOH

Palm kernel oil

Volume (000 tonnes)
Value (RM million)
933
2,313
2,158
950
2,700
2,565
9.7
-9.8
-1.0
1.8
16.7
18.9
Saw logs
Volume (000 cubic metres)
Unit Value (RM/cubic metres)
Value (RM million)
4,772
474
2,261
5,000
480
2,400
-17.1
10.7
-8.3
4.8
1.3
6.1
Sawn timber
Volume (000 cubic metres)
Unit Value (RM/cubic metres)
Value (RM million)
2,939
1,203
3,536
3,281
1,250
4,101
-10.3
13.6
1.9
11.6
3.9
16.0

Rubber
Volume (000 tonnes)
Value (RM million)
1,134
7,259
8,235
1,165
7,200
8,388
0.6
41.5
42.3
2.7
-0.8
1.9

Pepper
Volume (000 tonnes
Value (RM million)
16.5
15.6
8,684 10,500
139
164
-8.0
28.9
14.4
-5.5
20.9
18.2
Cocoa
Volume (000 tonnes)
Value (RM million)
Crude petroleum
Volume (000 tonnes)
Value (RM million)
Liquefied natural gas
Volume (000 tonnes)
Value (RM million)
Tin
Volume (000 tonnes)
Value (RM million)
Total value (RM million)
1
2
20071
3DOP2LO
([SRUWVDQG3ULFH
50PLOOLRQ

Change (%)
14
5,624
76
14
5,800
81
16,858 17,640
1,896
1,968
31,955 34,723
21,534 22,470
1,081
1,099
23,286 24,560
45.7
3.7
51.2
-7.5
17.7
8.8
-1.9
14.2
12.0

50PLOOLRQ

6DZQ7LPEHUDQG6DZ/RJV
([SRUWVDQG8QLW9DOXH

29.0
53.5
98.1
94,916 112,682
11.4
18.7

ULJKWVFDOH

VHQNJ

([SRUWV
4 4 4 4
605ULJKWVFDOH

4.3
1.6
5.5
-42.3
8.2
-37.7

50FXPHWUH

4.6
3.8
8.7
25
46
1,155

5XEEHU
([SRUWVDQG3ULFH

&UXGH3HWUROHXP
([SRUWVDQG3ULFH
50PLOOLRQ
19
30
583

([SRUWV
50PLOOLRQ

4 4 4 4
([SRUWXQLWYDOXHRIVDZQWLPEHU
([SRUWXQLWYDOXHRIVDZORJV
3.6
3.1
6.9

86'EDUUHO

([SRUWV
4 4 4 4
:HLJKWHGDYHUDJHSULFH
ULJKWVFDOH

Estimate.

Includes crude palm oil, processed palm oil and stearin.
Source: Department of Statistics Malaysia, Malaysian Palm Oil Board and


44XDUWHUO\
62

by 11.7% to 12.1 million tonnes (January-June

2006: -5.3%; 10.8 million tonnes) while prices
increased to RM1,067 per tonne in the first
half of 2007 (January-June 2006: RM1,037 per
tonne).
imports included naphtha, diesel fuel, coal and

natural gas. Despite slower external demand for
E&E products, import values of thermionic valves
and tubes, which are inputs for the E&E industry,
remained high at RM55,604 million (JanuaryJune 2006: RM54,563 million), indicating better
prospects for the export-oriented semiconductor
industry. Poor domestic sales of motor vehicles,
lower production as well as a weak used car
market continued to plague the transport equipment
industry. Consequently, imports of parts and
accessories for transport equipment posted a
decline of 4.6% (January-June 2006: -0.6%).
Growth in the sub-category was mainly supported
by imports of aircraft engines and parts as well
as turbo jets, propellers and parts. For the year,
imports of intermediate goods are projected to
grow by 7.9% (2006: 8.8%) to meet increased
domestic demand as investment, production and
consumption activity strengthen. In addition, a
pick up in global E&E cycle towards the second
half of the year will also lend support to growth
in imports of intermediate goods.
Import Performance
Imports to accelerate
Gross imports valued at cost, insurance and
freight (c.i.f.) are expected to expand 7.6%
in 2007 to RM517,264 million (2006: 10.8%;
RM480,773 million). During the first six months
of the year, gross imports increased 3.5% to
RM231,237 million) following strong demand
for intermediate goods which accounted for
71.5% of total imports, as shown in Table 3.17.
Likewise, imports of consumption goods grew in
consonant with resilient household spending and
increased tourist arrivals. The level of imports of
capital goods was sustained. In terms of product
sectors, imports included mainly E&E products,
machinery, appliances and parts, chemical and
chemical products, manufactures of metal as
well as iron and steel products.
Imports of capital goods, which comprised 13.2%

of total imports declined 2.8% to RM31,525 million
during the first six months of 2007 after recording
growth of 16.7% during the corresponding period
last year. The strong growth was on account of
delivery of lumpy items such as ships, aircraft,
offshore support vessels, rail locomotives as
well as machinery and equipment in tandem with
strong external demand for commodity exports
and capacity expansion in various sectors,
including oil and gas, travel and manufacturing.
Despite posting negative growth in the first six
months of 2007, import values of capital goods
remained high, supported primarily by demand
for capital goods, excluding transport equipment.
This sub-category, which accounted for 87.4%
of capital goods, grew 1.1% (January-June
2006: 83.9%; 8.6%) in tandem with sustained
business and investment activity. Principal
products imported included electronic equipment
and parts, telecommunications equipment as well
as floating docks for the oil and gas industry.
Imports of transport equipment for industrial
purposes declined 23.6% to RM3,980 million
due to dissipation of the high-base effect
(January-June 2006: 92.2%; RM5,211 million).
Nevertheless, capital goods imported during
this period included aircraft, tankers and heavy
vehicles. For the year, imports of capital goods
are envisaged to expand 4.6% to RM68,279
Led by sustained production and investment

activity, imports of intermediate goods grew
7.6% to RM171,235 million (January-June 2006:
8.0%; RM159,134 million) in the first six months
of the year. On a disaggregated basis, imports
of industrial supplies, including metals and
chemicals, surged 23.1% (January-June 2006:
1.0%) driven by increased demand in domestic
oriented industries such as chemicals, iron, steel
and other metals as well as construction related
industries. Imports also included line pipes for
the oil and gas industry and animal feed for
livestock. Likewise, strong consumption activity was
reflected in the imports of primary and processed
materials for the food and beverages industry
which increased by 7.9% (January-June 2006:
28.5%). Cocoa beans, soya beans, cane sugar,
palm oil as well as milk and cream in powder
and other forms, were among the principal inputs
imported by the industry. High petroleum prices
and weak demand for transport equipment saw
imports of fuels and lubricants record a marginal
growth of 1.4% (January-June 2006: 30.7%).
Apart from crude petroleum which accounted
for 50.0% of imports in the sub-category, other
63
TABLE 3.17
Gross Imports by End Use

January-June
Change
(%)
RM million
2006
Share
(%)
2007
2006
2007
2006
2007
Capital goods
32,448
31,525
16.7
-2.8
14.0
13.2
Capital goods (except transport equipment)
27,237
27,545
8.6
1.1
83.9
87.4
5,211
3,980
92.2
-23.6
16.1
12.6
159,134
171,235
8.0
7.6
68.8
71.5
5,344
5,764
28.5
7.9
3.4
3.4
Transport equipment (industrial)

Intermediate goods
Food and beverages, primary and
processed mainly for industry
Industrial supplies, primary and processed
48,510
59,732
1.0
23.1
30.5
34.9
Fuel and lubricants primary processed,

others
16,196
16,416
30.7
1.4
10.2
9.6
5,968
5,692
-0.6
-4.6
3.8
3.3
Parts and accessories of capital goods

(except thermionic valves and tubes)
28,555
28,027
6.3
-1.8
17.9
16.4
Thermionic valves and tubes
54,563
55,604
9.2
1.9
34.3
32.5
Parts and accessories of transport

equipment
Consumption goods
13,164
13,824
13.4
5.0
5.7
5.8
Food and beverages, primary and

processed, mainly for household
consumption
Transport equipment (non-industrial)
4,635
5,039
4.4
8.7
35.2
36.5
150
144
19.3
-4.1
1.1
1.0
Other consumer goods
8,378
8,641
18.9
3.1
63.6
62.5
Durables
1,829
2,119
10.3
15.9
21.8
24.5
Semi-durables
2,899
2,664
34.9
-8.1
34.6
30.8
Non-durables
3,650
3,858
12.8
5.7
43.6
44.6
Others (including dual use goods)
10,106
10,257
10.6
1.5
4.4
4.3
Imports for re-exports
16,384
12,552
72.3
-23.4
7.1
5.2
231,237
239,393
12.6
3.5
100.0
100.0
Total
19.3%), a sharp increase of 8.7% (January-June

2006: 4.4%) was recorded in the import bill of
food and beverages, indicating strong private
consumption and tourist spending. Frozen meat,
fruits, fresh and frozen seafood, vegetables,
alcoholic beverages as well as milk and
cream in powder and other forms were among
the items imported. Similarly, strong growth of
15.9% and 5.7% (January-June 2006: 10.3%;
12.8%), respectively was also seen in imports of
durables and non-durables. Major consumption
goods included medicaments, pharmaceuticals,
million (2006: 7.4%; RM65,257 million) in line

with increased investment in plant, machinery
and equipment as business and investment
activity come on stream with the implementation
of development projects.
B o o s t e d b y r i s i n g a ff l u e n c e , i m p o r t s o f
consumption goods expanded by 5.0% (JanuaryJune 2006: 13.4%) in the first six months of the
year. While imports of non-industrial transport
equipment such as outboard motors, motorcycles
and bicycles fell 4.1% (January-June 2006:
64
cosmetics and health care products, batteries,

furniture, printed material as well as household
electrical appliances. Accordingly, the share of
consumption goods to total imports increased to
5.8% compared with 5.7% in the corresponding
period of last year. For the year, imports of
consumption goods are set to expand by 9.4%
(2006: 13.4%) spurred by rising disposable
income, increased tourist arrivals as well as
year-end festivities and holidays.
goods are reassembled, packed and labelled at

commercial free zone areas in ports and airports
for re-exports mainly to the US, Thailand, China,
Hong Kong, Singapore, Australia and India. Reexports are anticipated to expand 5.3% (2006:
50.6%) for the year boosted by an upturn in the
global electronics cycle towards the second half
of the year as well as continued investment in oil
and gas production and exploration activities.
Other imports, including dual use goods,

increased marginally by 1.5% (January-June
2006: 10.6%) on account of sustained demand
for motor spirit of all grades and motor cars,
including station wagons and vans. Meanwhile,
sluggish global demand for E&E products was
reflected in a 23.4% contraction (JanuaryJune 2006: 72.3%) in imports for re-exports.
Accounting for 5.2% (January-June 2006: 7.1%)
of total imports, re-exports comprised mainly
parts and accessories for ADP machines and
digital monolithic integrated circuits. Other items
included line pipes and floating structures for oil
and gas industry, flat rolled steel products as well
as parts for aircraft and aircraft engines. These
Balance of Payments
TABLE 3.18
Strong current account surplus

Malaysias overall balance of payments position
is anticipated to remain favourable in 2007 with
the current account posting a surplus for the
tenth consecutive year, as shown in Table 3.18.
The surplus in the current account, however,
is projected to narrow to 14.8% of GNP (2006:
16.8%), consistent with continued expansion in
manufacturing and investment activity. While the
surplus in the goods account is expected to be
marginally lower, increased tourist receipts and
higher earnings in the transportation account
Current Account of the Balance of Payments

2007-2008
(RM million)
20071
20082
Net
619,164
617,229
4.8
490,373
517,264
7.6
128,791
99,965
661,209
659,143
6.8
530,454
559,544
8.2
130,755
99,599
Services
Transportation
Travel
Other services
Government transactions
91,861
19,927
44,500
26,947
487
95,846
38,892
17,220
38,856
878
-3,985
-18,965
27,280
-11,908
-392
102,120
24,121
49,000
28,413
587
106,766
43,223
20,396
42,169
978
-4,646
-19,102
28,604
-13,756
-392
Income
Compensation of employees
Investment income
33,804
5,388
28,416
51,644
5,561
46,083
-17,840
-173
-17,667
35,524
5,654
29,870
55,498
6,922
48,576
-19,974
-1,268
-18,706
1,293
746,122
18,295
656,158
-17,002
89,964
1,364
800,217
18,785
711,503
-17,421
88,714
Goods
Trade account (Exports/Imports)
(% annual change)
Current transfers
Current account
1
2
Estimate.
Forecast.
Source: Ministry of Finance, Malaysia.
65
Net
are expected to significantly improve the deficit

envisaged in the services account. Meanwhile,
the deficit in the income and transfers accounts
are expected to be sustained. The financial
account, however, is expected to record lower net
outflows following improved business confidence,
underpinned by new investment opportunities in
the IDR and NCER, business friendly policies as
well as better corporate performance of GLCs
and the private sector. Accordingly, Malaysias
international reserves are anticipated to be
strong, further enhancing the nations economic
resilience.
outflows, which include payments for business,

leisure, education, health as well as pilgrimage
are anticipated to increase further by 16.9% to
RM17,220 million (2006: 4.9%; RM14,736 million)
as more Malaysians travel abroad on account of
rising affluence and increasingly affordable air
travel. Although payments for transportation are
expected to be higher on account of Malaysias
continued reliance on foreign freight services for
transportation of goods, gross receipts are also
envisaged to increase, supported by a buoyant
air passenger segment. Boosted by capacity
expansion in airport facilities and services,
increasing business activities, and with VMY 2007
well underway, patronage of domestic airlines is
expected to continue trending upwards. Additionally,
a surge in intra-regional travel following enhanced
connectivity and competitive air fares, coupled
with new destination launches are anticipated to
further spur growth in transport receipts. Apart
from aircraft parking and landing fees as well
as other airport disbursements, higher earnings
are also expected from related port dues with
the expansion in container throughput at major
ports. Accordingly, the transportation account is
projected to register a smaller deficit by 3.3%
to RM18,965 million (2006: 19.4%; -RM19,620
million) for the year. Meanwhile, net outflows
in the other services account is anticipated
to be higher as Malaysia continues to import
foreign professional, business and technical
expertise. Payments for royalties, licence fees,
construction and installation services as well as
brisk economic activity in trade-related services,
including insurance, telecommunications, finance
and leasing are also expected to contribute to
net outflows.
Despite favourable commodity prices and an

anticipated upturn in the global electronics cycle
towards the second half of the year, the goods
account in 2007 is expected to post a lower
surplus, contracting by 4.3% to RM128,791
million (2006: 7.2%; RM134,558 million) in
line with moderate expansion in world trade.
Nevertheless, firm commodity prices and strong
demand, in particular, for palm oil and crude
petroleum from emerging markets such as China
and India are expected to boost export earnings
of major commodities, increasing their share
to total exports to 18.3% (2006: 16.1%). For
the year, however, import growth is expected
to outpace exports, consistent with increased
domestic demand for capital, intermediate and
consumption goods. Accordingly, imports are
anticipated to accelerate by 7.7% to RM490,373
million while exports, at 5.0% to RM619,164
million (2006: 10.6%, RM455,185 million; 9.8%,
RM589,743 million).
The services account, comprising transportation,
travel, government transactions and other
services, is expected to improve significantly and
record a lower deficit of RM3,985 million (2006:
-RM6,931million) underpinned by higher tourist
arrivals and improved earnings in air passenger
travel. Net inflows in the travel account are
projected to increase 16.1% to RM27,280 million
(2006: 20.8%; RM23,501 million) in tandem with
VMY 2007, coupled with aggressive efforts to
promote Malaysia as a health, education as well
as an international convention and exhibition
hub. For the year, tourist spending, the largest
contributor to earnings in the services account,
is poised to expand by 16.4% to RM44,500
million (2006: 14.1%; RM38,237 million). Gross
The deficit in the income account is expected

to be sustained at RM17,840 million (2006:
-RM17,356 million), as a result of increased
repatriation of interest, profits and dividends
accruing to Malaysian firms operating abroad.
Gross receipts, anticipated to increase by 9.1%
to RM33,804 million in 2007, are primarily from
oil and gas, utilities, manufacturing, banking,
telecommunications and construction activities
where Malaysian companies have gained a firm
foothold abroad. Improved returns on external
reserves holdings are also expected to offset
the deficit in the income account. Similarly,
gross payments, comprising interest, profits and
dividends of MNCs operating in Malaysia are
66
envisaged to increase 6.8% to RM51,644 million

(2006: 9.3%; RM48,349 million) in anticipation
of improved corporate earnings following strong
economic activity. In the light of concerted efforts
to further enhance the investment climate through
various policies and initiatives, a significant
portion of the earnings is expected to be
retained in Malaysia for re-investment purposes,
signalling continued confidence in the economy.
The other component in the income account,
compensation of employees, which includes
salaries and other benefits earned by expatriates
working in Malaysia and by Malaysians working
abroad, is expected to record a smaller deficit
of RM173 million in 2007 (2006: -RM283 million)
in keeping with recent trends. Higher inflows
envisaged in the account will be supported by
foreign demand for local professional skills and
technical expertise in various fields, including,
oil and gas, construction, plantation agriculture
and other professional businesses.
and smooth implementation of projects under the

9MP are also expected to boost inflows of FDI.
Outward flows are also expected to be substantial
as Malaysian firms continue to expand and
diversify their business interests abroad mainly
in oil and gas, manufacturing, services and
construction.
Reinforced by sound macroeconomic fundamentals,
investor confidence is also expected to be
reflected in strong portfolio inflows in anticipation
of better returns on equities and debt securities.
The other investment component of the financial
account is, however, expected to register a net
outflow mainly on account of net repayments of
external loans by the official sector, trade credits
extended by Malaysian exporters and repayment
of trade credits by Malaysian importers. In
addition, placement of assets abroad by the
banking sector and settling of inter-bank
borrowings will continue to contribute to the
outflows.
Net outflows associated with current transfers,

which reflect remittances by Malaysians working
abroad and repatriation of earnings by foreign
workers in Malaysia, are expected to remain
stable. This is in line with the Governments
efforts to regulate the inflow and presence of
foreign workers according to the needs of the
various sectors of the economy. As such, transfer
payments in 2007 are expected to see only a
marginal increase of 1.6% to RM18,295 million
(2006: -0.5%; RM17,999 million) while receipts are
projected to expand by 12.7% to RM1,293 million
(2006: 1.4%; RM1,147 million). Consequently,
the deficit in the current transfers is expected to
be sustained, growing 0.9% to RM17,002 million
(2006: -0.7%; -RM16,852 million).
,QWHUQDWLRQDO5HVHUYHV
50ELOOLRQ

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ULJKWVFDOH

The financial account, comprising direct

investment, portfolio investment and other
investment, is expected to further improve following
concerted efforts by the Government to provide
a conducive business environment. Liberalisation
measures in the property market, including the
waiver on RPGT, growing number of merger
and acquisition activities in financial, plantation
agriculture and communications sectors as well as
improved corporate earnings are expected to spur
greater inflows of FDI. In addition, rising business
confidence in the light of developments in IDR
and NCER, liberalisation of foreign exchange rules

67
As at 15 August 2007, Malaysias international

reserves amounted to RM339.7 billion (USD98.4
billion) on account of strong two-way flows as
the economy continued to expand. The increase
of RM49.3 billion in net international reserves
since end-December 2006 (RM290.4 billion/
USD82.5 billion) was due to sustained repatriation
of export earnings, and steady inflows of FDI
and portfolio funds. Outflows were mainly in
the form of higher import payments for goods
and services, repayment and prepayment of
external loans, repatriation of interest, profits and
dividends by foreign firms operating in Malaysia
as well as outward investments by Malaysian
companies. The reserves level remains useable
and unencumbered, adequate to finance 8.9
months of retained imports and is 8.7 times the
short-term external debt.
TABLE 3.19
Consumer Price Index (CPI)

January-July
(2005=100)
Change
(%)
Contribution
to CPI
growth (%)
2007
2007
100.0
2.0
100.0
31.4
2.8
45.4
Alcoholic beverages
and tobacco
1.9
6.2
6.2
Clothing and footwear
3.1
-1.6
-2.5
21.4
1.4
14.7
Furnishings, household
equipment and
routine household
maintenance
4.3
1.1
2.2
Health
1.4
1.6
1.1
Weight
Total
Food and non alcoholic
beverages
Housing, water,
electricity, gas and
other fuels
Prices
Low inflationary pressures
Transport
Inflation as measured by annual percentage

change in the Consumer Price Index (CPI) in
the first seven months of 2007 eased significantly
to 2.0% (January-July 2006: 3.8%), due to better
supply conditions, keen competition, effective price
monitoring as well as strengthening of ringgit. The
increase in CPI was largely due to higher prices
of food and non-alcoholic beverages, transport,
rental and utilities. These three groups accounted
for 87.4 % of the total increase in CPI.
15.9
3.2
27.3
Communication
5.1
-1.4
-3.9
Recreation and culture
4.6
0.7
1.5
Education
1.9
2.0
1.9
Restaurants and hotels
3.0
2.7
4.3
Miscellaneous goods
and services
6.0
0.6
1.8
The food and non-alcoholic beverages group

registered an increase of 2.8% and contributed
0.9 percentage points to CPI during the first
seven months of 2007 (January-July 2006: 3.5%;
1.1 percentage points). The price increase in the
food component was due to disruption in supply
of vegetables affected by heavy rain and floods
in early 2007 as well as stronger demand during
the festive seasons and school holidays.
Prices in the housing, water, electricity,

gas and other fuels group increased 1.4%
contributing 0.3 percentage points to the
increase in CPI (January-July 2006: 1.4%; 0.3
percentage points). There was marginal increase of
between 1.1% to 1.2% in rental, electricity
and water prices, while gas price increased
5.1%. Prices of clothing and footwear group
continued to decline 1.6% (January-July 2006:
-1.2%), due to stiff competition from cheaper
imports.
In the transport group, prices increased 3.2%

contributing 0.5 percentage points to the total
increase in the CPI during the first seven months
(January-July 2006: 12.6%; 2.0 percentage
points). Notable increases were registered in
cost of repair and maintenance for personal
transport (8.0%), fuels and lubricants (4.7%)
and air passenger transport (11.9%).
The Core Inflation rate, as measured by changes

in the CPI excluding price control items, energy
and utilities trended downwards to 1.6% in the
first seven months of 2007 (January-July 2006:
68
higher rate of inflation in urban areas efforts

have been taken to improve public transportation
and build more affordable houses for the low
income group.
&+$57
7UHQGRI&3,DQG33,
DQQXDOFKDQJH

To ensure stable prices of basic food items,

several agencies like Federal Agricultural Marketing
Authority (FAMA) and Lembaga Kemajuan Ikan
Malaysia (LKIM) have been entrusted to facilitate
adequate supply of farm produce, fish and food
products. Among measures undertaken include,
expanding network of farmers markets and
distribution centres. In addition, the Government,
in collaboration with hypermarkets has ensured
that prices of consumer items remain affordable.
Several laws and regulations are in place to
address profiteering in addition to enforcement
efforts, which have been stepped up. Ongoing
programmes include consumer education to
increase public awareness on consumerism and
prudent spending.

33,
&3,

- $ - 2 - $ - 2 - $ - 2 - $ - 2 - $

The Producer Price Index (PPI), a measure of

the changes in the price of commodities charged
by domestic producers and those paid by local
importers, registered a moderate increase of 4.1%
for the first six months of the year (January-June
2006: 7.3%), despite high commodity prices.
PPI moderated due to greater automation in
manufacturing and the rebasing of PPI from 1989
to 2000, with greater weightage to non-commodity
items. The increase in PPI for the domestic
economy was largely from animal and vegetable
oils and fats group at 1.3 percentage points,
followed by machinery and transport equipment
group at 1.3 percentage points (January-June
2006: 0.1 percentage points; 3.4 percentage
points).

2.1%). The downward and stable movement in

Core Inflation rate underpins benign inflationary
expectation.
The inflation rate between urban and rural areas
narrowed in the first seven months of 2007. The
inflation rate in urban areas, increased 1.6%
(January-July 2006: 3.9%) while in the rural
areas, it increased at a slower rate to 1.8%
(January-July 2006: 4.3%). The higher cost of
living in the urban and rural areas was due to
price increases in food and beverages, rental,
utilities and transport.
PPI for local production in the first six

months moderated to 3.8% (January-June
2006: 10.7%). The moderation in PPI for local
production was due to a 21.6% decrease
in prices of mineral fuels, lubricants and
related materials group (January-June 2006:
22.6%). Meanwhile, PPI for imports rose
4.8% (January-June 2006: 1.0%) due to
increases in prices of machinery and transport
equipment group, which contributed 3.5
percentage points to the increase in PPI for
imports (January-June 2006: -1.5 percentage
points).
Despite a generally low inflation environment,

the Government has a multi-pronged strategy
to minimise the impact of price increase on
the population especially the low income group.
Among the measures taken, include ensuring
adequate supply of goods and services, increasing
enforcement of relevant laws and regulations and
consumer awareness. In view of the relatively
69
TABLE 3.20
Producer Price Index (PPI)

January-June
(2000=100)
Change
(%)
Weight
Domestic economy
2006
Contribution to PPI
growth (%)
2007
2006
2007
100.0
7.3
4.1
100.0
100.0
5.3
2.6
8.7
1.9
10.8
Food and live animals

Beverages and tobacco
1.0
2.9
1.6
0.4
0.4
Crude materials, inedible excepts fuels
4.4
12.9
15.6
8.1
16.3
11.9
17.4
-4.7
29.5
-13.2
3.8
1.6
34.8
0.9
31.4
Mineral fuels, lubricants and related materials

Animal and vegetable oils and fats
5.1
3.0
4.5
2.2
5.4
Manufactured goods, classified chiefly by material
Chemical and related products n.e.s
11.0
2.0
6.1
3.2
15.9
Machinery and transport equipment
50.5
6.6
2.5
47.9
30.0
Miscellaneous manufactures articles
3.7
5.6
1.1
5.4
1.8
Commodities and transactions not classified elsewhere in the SITC1
0.4
8.1
12.9
0.5
1.2
Local production
65.6
10.7
3.8
95.3
60.2
Imports
34.4
1.0
4.8
4.7
39.8
Standard International Trade Classification.
Labour Market
years age group, is expected to decline to 24.6%

(2006: 24.8%). The proportion of labour force
with tertiary education is projected to increase to
22.5% in 2007 (2006: 21.2%), reflecting higher
enrolment of students.
Employment continues to grow

The labour market is expected to remain favourable
in 2007 in line with strong domestic economic
activity. All sectors of the economy are expected
to generate additional employment opportunities
with total employment expanding 2.1% (2006:
2.4%). New employment is estimated to increase
by 2.1% to 232,600 jobs in 2007. Meanwhile,
unemployment rate is envisaged to remain low
at 3.3% of labour force (2006: 385,500;
3.3%).
The total employment for 2007 is estimated at

11.8 million (2006: 11.5 million). It is estimated
that the services sector will remain the largest
employer accounting for 51.5% of total employment,
with the distributive trade, accommodation and
restaurants sub-sector contributing the largest
share at 34.8%. The manufacturing sector is
expected to contribute 29.3%, with bulk of the
jobs in the E&E industry, followed by agriculture
(12.1%) and construction sector 6.7%.
The overall labour force participation rate, which

represents the active workforce of the 15-64 age
group, is expected to remain relatively high at
67.0% in 2007 (2006: 66.9%). Male participation
is expected to increase 87.0%, while womens
participation to remain at 46.1% (2006: 86.7%,
46.1%), respectively. Participation from the
younger workforce, particularly those in the 15-24
The stable growth in job vacancy reflects

positive employment conditions on the back
of vibrant economic activity. Job vacancies
reported by the Electronic Labour Exchange
(ELX) increased by 379,945 during the first six
months of 2007 (January-June 2006: 396,745).
70
The manufacturing sector reported the highest

number of vacancies (33.5%), followed by services
(25.6%), agriculture (23.6%) and construction
(17.1%). Jobs advertised in the ELX were largely
for elementary occupations requiring low skills
and education levels (55.2%). The number of job
vacancies reported in the ELX is lower than the
actual number in the market as registration in the
ELX is voluntary. To further boost the usage of
ELX, kiosks have been placed in major shopping
complexes where prospective employees are likely
to congregate. The ELX system is being upgraded
to make it more user-friendly and improve the
efficiency of employer-employee matching
process.
TABLE 3.21
Labour Market Indicators

(000)
2006
Change
(%)
20071
2006
20071
Labour force
11,544.5 11,775.1
2.2
2.0
Employment
11,159.1 11,391.7
2.4
2.1
3.32
3.32
Unemployment
1
2
385.5
383.5
Estimate.
Percentage of labour force.
35.0% of registered active jobseekers reflecting

optimism in improved job prospects. Of the total
jobseekers, 59.0% were in the 20-24 years of
age group, while 22.3% were in the 25-29 years
age group. In terms of qualification, 45.4% were
degree and diploma holders, while 31.0% were
The number of active jobseekers rose 32.0%

to 93,314 persons during the first six months of
2007, (January-June 2006: -14.5%; 70,718). The
higher number of job seekers was largely due to
employed persons registering to seek better jobs.
As at end June 2007, this group accounted for
TABLE 3.22
Employment by Sector
(000)
Agriculture, forestry, livestocks and

fishing
Mining and quarrying
Manufacturing
Construction
Change (%)
2006
20071
2006
1,392.4
1,377.5
42.6
3,244.3
Share (%)
20071
2006
20071
-0.6
-1.1
12.5
12.1
42.9
-0.2
0.7
0.4
0.4
3,342.8
3.5
3.0
29.0
29.3
755.2
766.3
-0.6
1.5
6.8
6.7
5,724.6
5,862.2
3.0
2.4
51.3
51.5
95.0
97.2
2.2
2.3
0.9
0.9
1,993.6
2,038.3
3.5
2.2
17.9
17.9
Finance, insurance, real estates and

business services
771.0
791.1
5.0
2.6
6.9
6.9
Transport, storage and

communication
646.4
662.1
2.5
2.4
5.8
5.8
1,064.0
1,075.3
1.1
1.1
9.5
9.4
Services
Electricity, gas and water
Wholesale and retail trade,
accommodation and restaurants
Government services
Other services
1,154.7
1,198.2
3.3
3.8
10.3
10.5
11,159.1
11,391.7
2.4
2.1
100.0
100.0
Primary
1,435.1
1,420.4
-0.6
-1.0
12.9
12.5
Secondary
3,999.5
4,109.1
4.1
2.7
35.8
36.1
Tertiary
5,724.6
5,862.2
3.0
2.4
51.3
51.5
Total
Estimate.
71
As at end May 2007, there were more than 1.91

million registered foreign workers (including
expatriates) in Malaysia accounting for 16.8%
of total employment. Foreign workers are mainly
engaged in semi and low-skilled jobs in the
manufacturing sector (34.7%), agriculture (25.5%)
while 16.7% are domestic maids. Indonesians
comprise 75.6% of total foreign labour, followed by
Nepalese (14.5%) and Indians (9.1%). There are
plans to reduce the number of foreign workers to
about 1.5 million by 2010, in particular unskilled
workers. To reduce reliance on foreign workers,
employers are encouraged to move up the value
chain by adopting new technology, introducing
mechanisation and automation in the production
process.
&+$57
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3ODFHPHQWV
9DFDQF\

Meanwhile, as at end-July 2007, a total of 35,052

(2006: 26,697) expatriates were employed in
the country as professionals, specialists and
skilled workers mainly in the services (16,871)
and manufacturing (12,284) sectors. Majority of
the expatriates were from India (48.1%; 7,040),
Japan (10.1%: 3,535) and China (9.8%; 3,444).
The employment of expatriates is in line with
Governments efforts to promote high-end growth
sectors, through enhancing capacity especially
in technical and professional services.

-DQXDU\-XQH
6RXUFH0LQLVWU\RI+XPDQ5HVRXUFHV0DOD\VLD
Outlook for 2008
Sijil Pelajaran Malaysia (SPM) school leavers.

Graduate jobseekers registered with the system
were mainly from business administration, IT,
arts, science and technical fields.
Malaysian Economy
Private sector led growth, reinforced by
improved external environment
The number of retrenched workers declined

by 18.2% to 8,382 (January-June 2006: 40.8%;
10,250). The affected workers were mainly plant
and machine operators and assemblers, general
workers as well as those in craft and related
trade. The manufacturing sector registered
the largest number of retrenchments (6,351:
76.9%), mainly in the manufacture of radio,
television and communication equipment and
apparatus sub-sectors (6,264: 98.6% of sector).
Retrenchments in the services sector accounted
for 19.8%, (January-June 2006: 3,731; 36.4%) in
particular the sub-sectors of wholesale & retail
trade, repair of motor vehicles, motorcycles
and personal household goods as well as hotel
and restaurants. Overall, the retrenchments
were mainly due to firms rationalising their
operations to improve productivity and
profitability.
Growth prospects for the global economy remain

favourable in 2008. The world economy is projected
to expand by 5.2% (2007: 5.2%) supported by
broad-based and balanced expansion across the
regions. Growth will be led by emerging market
and developing countries, in particular, China,
India and Russia. The upturn in the US economy
and sustained growth in the Euro area will further
reinforce the continued expansion in world growth.
World trade is expected to grow at a faster pace
of 7.4% (2007: 7.1%) underpinned by strong
demand for commodities, continued expansion
in trade in services and supported by sustained
demand for electronics. Inflationary pressures
are expected to be manageable, cushioned in
part by higher productivity growth, softening US
72
domestic consumption spending as well as

higher tourist arrivals and establishment of new
retail outlets will contribute to sturdy growth in
the wholesale and retail trade as well as the
accommodation and restaurants sub-sectors.
In addition, real estate and business services
as well as finance and insurance sub-sectors
are expected to benefit mainly from increased
property transactions and continued expansion in
the demand for IT-related and financial services.
Growth in the transport and storage as well
as communication sub-sectors are expected
to be sustained, following upgrading of port
facilities, higher investment in the air and land
transportation segments as well as enhancement
in the telecommunications network.
dollar as well as proactive measures taken by

major economies to contain inflation.
Despite the positive outlook, several downside
risks remain, which could derail the growth
momentum of the world economy. These
include, among others, lower-than-expected
growth of the US economy, prolonged subprime
mortgage crisis, widening global imbalances, oil
price shocks leading to higher world inflation,
geopolitical tensions as well as pandemic diseases.
Notwithstanding the external challenges, the
Malaysian economy is expected to remain resilient
on the back of a well-diversified and broad-based
structure as well as strong macroeconomic
fundamentals, which have strengthened over
the years.
Value added in the manufacturing sector is

projected to grow by 3.8% (2007: 3.1%) in line
with expansion in global trade. Global demand for
manufactured goods, particularly E&E products,
is expected to rise sharply, underpinned by
sustained world growth and strengthening US
economy. This will benefit Malaysias exportoriented industries. Output of resource-based
products is expected to expand due to strong
demand for refined petroleum products, plastics
and chemicals including biofuels, rubber gloves
as well as wooden furniture and fixtures. Growth
in non-metallic minerals and metal industries will
be further supported by increased activity in the
domestic economy, in particular construction.
The Malaysian economy is anticipated to strengthen

further to 6.0-6.5% in 2008 (2007: 6.0%) with
positive contribution from all sectors of the
economy. Domestic demand will be the main
driver of the economy, while external demand
is expected to pick up in tandem with improved
prospects in world trade. Private investment and
consumption spending are expected to remain
robust, while public expenditure continues to
expand. Inflation is anticipated to remain low
despite strong expansion in the economy as
output growth is still below potential level. Coupled
with increased productivity, the economy would
be able to absorb higher demand expenditure.
In line with higher output and firm commodity
prices, nominal GNP per capita is expected to
rise 6.8% to RM23,864 in 2008 (2007: 7.2%;
RM22,345). In terms of PPP, per capita income is
expected to increase 6.9% to reach USD14,206
(2007: 13.9%; USD13,289), reflecting improved
quality of life of the rakyat.
Growth in the agriculture sector is envisaged at

3.5% (2007: 3.1%) on the back of rising output
in food commodities and higher production of oil
palm and rubber. Output of palm oil is expected
to increase by 2.0% following improved yields
and expansion in matured areas. In addition,
measures taken to achieve vision 35:25, a target
of 35 tonnes per hectare of FFB and 25.0% OER
through the wide use of high quality seedlings
and latest technology as well as knowledge-based
production systems will result in higher output of
palm oil. Production of rubber is also expected to
expand, supported by firm rubber prices, which
are likely to encourage smallholders to increase
tapping activity. Utilisation of better clones and
low intensity tapping system as well as the use
of stimulants is also envisaged to contribute to
higher output of rubber. Rapid developments in
the agro-food industry and promotion of other
sources of growth in agriculture, including
aquaculture, horticulture, seaweed, deep-sea
Sectoral Outlook
Robust services and vibrant construction
activity
All sectors of the economy are expected to
register steady growth in 2008, led by services,
reinforced by faster pace in construction activities
as well as high global electronics demand. The
services sector is forecast to sustain solid
growth at 8.6% (2007: 9.0%) with favourable
performance across all sub-sectors. Strong
73
fishing as well as kenaf planting will further boost

output of the sector. Output of livestock industry
is also envisaged to increase, contributed by the
integrated farming projects involving rearing of
cattle and goats in oil palm and rubber plantations.
Output of poultry and eggs are also expected to
increase with modern rearing systems to meet
local and external demand. In addition, agriculture
related projects under the NCER are expected
to contribute positively to the overall growth of
the agriculture sector in 2008.
sentiment and increasing foreign demand due

to various liberalisation measures and incentives
introduced in the property market.
Domestic Demand
Strong domestic demand driven by private
sector
The growth momentum in 2008 is expected to
strengthen, driven by positive developments that
supported domestic economic activity in 2007.
Aggregate domestic demand expenditure (excluding
change in stocks) is expected to expand 6.8%
(2007: 9.0%), strengthened by private sector
expenditure, which is envisaged to grow by 8.2%
(2007: 8.6%). The role of private sector as the key
engine of growth is reflected by its high contribution
of 5.1 percentage points to GDP growth (2007:
5.2 percentage points). Meanwhile, contribution to
GDP growth by the public sector is expected to
moderate to 0.8 percentage points in 2008 (2007:
2.4 percentage points) following slower growth
in public expenditure by 3.2% (2007: 10.1%).
Higher production of crude oil and natural gas

is expected to support growth in the mining
sector by 4.0% (2007: 3.3%). Production of
crude oil is expected to increase following the
completion of major maintenance and rejuvenation
of several oil wells over the past few years.
Production is envisaged to enhance further with
expanded capacity from the oil fields in Kikeh.
Similarly, production of LNG is expected to
increase on account of upgrading and expansion
of facilities in MLNG DUA plant in Bintulu,
Sarawak. Output from quarrying is expected to
pick up to meet demand for higher production of
cement and other non-metallic mineral products,
consistent with vibrant activity in the construction
sector.
In tandem with favourable business sentiment

and better external environment in 2008, private
investment is forecast to increase markedly
by 9.5%, accounting for 11.9% of GDP (2007:
7.1%; 11.6%). Investment activity is expected
to strengthen following various measures taken
by the Government to improve the business
climate, including further reduction of another
one percentage point in corporate tax to 26.0%
in 2008. Measures to strengthen intellectual
property rights including the setting up of additional
special courts are expected to boost investor
confidence and generate more R&D activities.
In addition, greater participation of the private
sector in the implementation of IDR, NCER and
other economic corridors is expected to accelerate
investment activities. The implementation of the
trans peninsular-oil pipeline across the northern
region, integrated petroleum terminal in Tanjung
Bin, Johor as well as greater upstream activity is
expected to increase investment outlay in the oil
and gas industry. In addition, MNCs are expected
to increase capacity utilisation in anticipation of
higher external demand, particularly in the E&E
The construction sector is poised to strengthen

further with a growth of 6.3% (2007: 5.2%) on
the back of ongoing infrastructure projects and
newly launched infrastructure projects under
9MP, in particular the development of growth
corridors. Growth is also expected to emanate
from the implementation of major transport-related
projects, such as the Second Penang Bridge,
Penang Monorail, Ipoh-Padang Besar Double
Tracking Rail project and extension of Ampang
and Kelana Jaya Light Rail Transit lines. Efforts
to develop Southern Johor as one of the worlds
largest integrated petroleum logistics hub and
the ongoing NCER will further add impetus to
the growth of this sector. In addition, the nonresidential sub-sector is envisaged to pick up
strongly supported by rising demand for office
space in tandem with increasing business activity,
especially in major urban and industrial areas.
The residential sub-sector is also expected
to strengthen on account of bullish consumer
74
sector. With significant number of DDI approvals

coming onstream in various sectors, greater
SME involvement in domestic economic activity
is envisaged to further enhance capital outlay.
Consequently, investment activity is expected
to further strengthen in 2008 and add to the
productive capacity of the economy, thereby
increasing Malaysias potential output in the
medium and long term.
stocks) is projected to continue to post doubledigit growth of 12.1% to RM148.3 billion (2007:
11.6%; RM132.3 billion) and account for 22.4%
of GNP (2007: 21.8%), driven mainly by private
sector investment activity. Accordingly, the
savings-investment gap in 2008 is expected
to be lower at RM88.7 billion or 13.4% of GNP
(2007: RM90 billion; 14.8%).
Private consumption is expected to increase

7.9% (2007: 9.0%) on account of higher disposable
income arising from firm commodity prices and
sustained domestic economic activity as well as
stable employment conditions. Pay hike for civil
servants effective July 2007 leading to increase
in permanent income is expected to further
enhance propensity to consume. Positive wealth
effects from the equity and property markets
will also enhance the propensity to consume.
As a result, share of private consumption to
GDP will increase to 50.8% in 2008 (2007:
49.9%).
External Sector
Lower current account surplus to meet
increased economic activity
Malaysias external position is expected to
remain strong in tandem with improved prospects
for global growth and world trade. The goods
account of the BOP is expected to record a
surplus of RM130,755 million (2007: RM128,791
million) even as import growth accelerates and
continues to outpace exports. This is on account
of increased domestic economic activity and to
meet rising demand for manufactured goods.
Firm commodity prices and higher demand for
E&E products are anticipated to boost growth
in exports (f.o.b) by 6.8% to RM661,209 million
(2007: 5.0%; RM619,164 million) while imports
(f.o.b) are projected to post a stronger growth
of 8.2% to RM530,454 million (2007: 7.7%;
RM490,373 million). Manufactured goods are
expected to account for 80.1% of total exports
while 83.6% of imports will comprise capital and
intermediate goods (2007: 79.3%; 83.2%).
Public consumption is projected to increase

5.5% in 2008 (2007: 10.8%), following higher
expenditure for emolument in tandem with
increased productivity in the public service. Share
of public consumption to GDP is expected to
be sustained at 13.4% in 2008 (2007: 13.5%).
Similarly, public investment growth is expected
to be 0.5%, with a share 10.8% to GDP (2007:
9.3%; 11.5%), supported by development
allocation of Federal Government expenditure
as well as higher capital outlay by Non-Financial
Public Enterprise.
Despite higher tourist arrivals and capacity

expansion in the air travel segment, the services
account is forecast to register a higher deficit
of RM4,646 million (2007: -RM3,985 million)
following higher payments for transportation and
other services, including professional, technical
and business services. The extension of VMY
into 2008, coupled with additional promotional
activities to promote various individual states and
niche tourism products is anticipated to boost
gross tourist receipts to RM49,000 million (2007:
RM44,500 million). This will result in a higher net
surplus in the travel account of RM28,604 million
(2007: RM27,280 million). In contrast, a higher
net outflow of RM19,974 million (2007: -RM17,840
National Resource Position

Lower savings-investment surplus
In line with expansion in domestic economic
activity and favourable export earnings, national
income in current prices is projected to expand
by 9.0% in 2008 (2007: 9.4%). Although total
consumption is expected to remain high at
10.7% (2007: 12.7%), growth in GNS is projected
to increase by 6.6% to RM237 billion. Total
investment expenditure (including change in
75
domestic economy. Although the surplus in the

goods account will be more than sufficient to
cushion higher net outflows in the services, income
and transfers accounts, the current account of
the balance of payments is expected to post a
lower surplus of RM88,714 million or 13.4% of
GNP (2007: RM89,964 million; 14.8%) consistent
with strong consumption and investment
activity.
million) is envisaged in the income account,

as MNCs continue to repatriate interest, profits
and dividends from higher export earnings and
improved corporate balance sheets. Meanwhile,
outflows in the transfers account, constituting
mainly remittances by foreign workers, is expected
to increase marginally to RM17,421 million (2007:
-RM17,002 million) on account of rising disposable
income following continued expansion of the
76

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3

Economic Report 2007/2008

inflows of foreign direct investment (FDI), higher

rowth prospects for the Malaysian economy

On the external front, Malaysia is expected to

Gross Domestic Product (GDP) by Sector

Less: Undistributed FISIM3

Add: Import duties

Financial Intermediate Services Indirectly Measured (FISIM).

Source: Department of Statistics and Ministry of Finance, Malaysia.

expansion in finance and insurance as well as

Meanwhile, growth of the business services

With regard to SSO activity, during the first

As for IT services, as at end-July 2007 there

and insurance. The growth in Islamic financing

The finance and insurance sub-sector is

Services Sector Performance

Transport and storage

Finance and insurance

Real estate and business services

Utilities (electricity, water and gas)

Wholesale and retail trade

Accommodation and restaurants

Source: Department of Statistics and Ministry of Finance, Malaysia.

sub-sectors is consistent with robust private

The Meetings, Incentives, Conventions and

Increased spending by rising number of foreign

The communication sub-sector is expected to

The tourism industry remains a key driver of

suited for both rural and urban areas, which

innovative offerings. On the other hand, the

Although electronic media is widely used today,

-11,736 -11,352 -11,572 -13,486 -17,545 -16,433 -19,620 -18,965 -19,102

-10,030 -13,187 -11,242 -13,011

-9,029 -11,676 -10,378 -11,908 -13,756

Source: Department of Statistics, Ministry of Tourism and Ministry of Finance, Malaysia.

celebration of major festivals and the year-end

triple Malaysias satellite communication capacity.

As for broadcasting, the launch of Measat-3

in travel and robust trade-related activities.

at end-June 2007 (end-June 2006: 104,000).

In addition, these major ports have taken initiatives

Growth in the air transportation segment was

Land transportation continues to record positive

travel on AirAsia surged by 42.6% to 4.5 million

in the country, the number of foreigners seeking

Air cargo volume handled by Malaysia Airports

Output driven by domestic-oriented

Growth in the utilities sub-sector is expected to

Output in the domestic-oriented industries grew

The other services sub-sector, comprising

Output of domestic-oriented industries, as

Manufacturing Production Index

Source: Department of Statistics and Ministry of Finance, Malaysia.

The chemicals and chemical products

and 3.4% (January-June 2006: -6.6%; 17.8%),

Performance of Selected Domestic-oriented

Output of the construction-related industry,

Source: Department of Statistics, Malaysia.

in the construction sector. This has helped to

Growth of the Construction-related Industries

Structural metal products,

Wire, wire products and

Basic iron and steel